Beyond the model : Investment Decision-making under uncertainty in real estate development

Sammanfattning

Real estate investment decisions are often portrayed as rational and model-driven processes structured through financial evaluation, risk quantification, and formal investment criteria. However, early-stage real estate development is characterized by incomplete information, uncertain market conditions, and long-term strategic complexity, raising questions about how investment decisions are actually formed in practice. This study explores how private real estate developers make investment decisions under uncertainty in the early stages of the development process. Drawing on a qualitative and exploratory research design, the study combines semi-structured interviews with professionals in Swedish real estate companies and document analysis of annual reports and investor presentations. The empirical material was analyzed through an abductive and thematic approach informed by literature on bounded rationality, financial decision-making, and organizational risk interpretation. The findings suggest that investment decision-making is not a linear or purely model-driven process. Instead, decisions emerge through an iterative interaction between financial evaluation, contextual interpretation, strategic reasoning, and professional judgment. Financial models play an important role in structuring discussions, testing assumptions, and communicating investment rationales, but rarely function as standalone decision-making tools. Rather than eliminating uncertainty, models appear to provide a framework through which uncertainty can be interpreted and negotiated. The study also identifies a clear distinction between how investment decisions are formed internally and how they are formally represented externally. While practitioners describe investment decision-making as interpretative, experience-based, and highly context-dependent, corporate communication tends to frame decisions through rationalized narratives emphasizing financial discipline, stable cash flows, and structured risk management. By examining the interaction between financial models, risk interpretation, and professional judgment, the study contributes to a more nuanced understanding of investment decision-making under uncertainty in real estate development. The findings challenge purely calculative perspectives of investment evaluation and highlight the importance of integrating organizational and behavioral dimensions into the study of real estate finance.