Abstract
Under the best of conditions, capital budgeting for real estate development is a very challenging process due to the long lags in production times that characterize the industry and contribute to the risk of significant forecasting error. Most real estate development firms practice advanced capital budgeting procedures in terms of the techniques used to evaluate individual projects. Similar to firms in other industries, many real estate development firms have multiple divisions that compete with each other for scarce resources-mainly capital available for investment. Hence, division managers may be compelled to "make the numbers work" in order to obtain funding for projects. In addition to the risk of adopting projects that will not meet the firm's return requirements, capital rationing within the firm may compound the situation.