This paper considers the use of options in real estate risk financing and investment. A model similar to Black and Cox (1976) for pricing senior-junior debt claims is presented and proved useful for pricing outside debt financing in the context of real estate risk. Next, Quigg's (1993) strategic real options model is also simulated and used to value project flexibilities which cannot be captured using traditional net present value (NPV) models, such as delaying investment. These models' useful inputs, and especially the volatility estimator, are provided by results on real estate indexes derived in a companion paper by BarthÈlÈmy, Baroni and Mokrane (2001) on the risk factors in physical real estate, who use a database of over 100 000 transactions mainly for residential assets in the Paris area over the 1973 - 1998 period. Comparative statics and empirical implications are provided.