Monte Carlo simulation in REPE?RE
When modelling real estate private equity deals, or real estate portfolios...
- Do you guys ever use Monte Carlo simulations* (whether Crystal Ball or your own programming)?
- Do your risk guys use these (if you are at a bank, or financial institution)?
- What about you RE junior debt / mezz guys? Do you use it?
I haven't seen many (rather any) people use Monte Carlo simulations in practice. Just sensitivity and scenario analyses.
As a quick aside, I'm not sure if I remember correctly, but does Argus use a Monte Carlo type process (behind the scenes) to deal with / model lease renewal optionality and such?
*Monte Carlo analysis is a type of predictive modelling / forecasting / optimisation analysis, based on simulating how a project / security reacts to uncertainty. Usually software based.