feasibility study

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feasibility study

An analysis of the marketplace to determine if it is economically practical and desirable to develop a particular project. Contrast with a market analysis, which merely identifies whether a defined market or trade area desires what you propose to build. A market study determines demand for the real estate development;a feasibility study determines whether that demand is willing to pay what the project will cost,plus a profit.

Example: The demand for first-class office space in downtown Elm City exceeds the available space. There are no vacancies, and potential tenants must take space in the suburbs or settle for less desirable space downtown. The market analysis determines that a market exists for a new midrise office building. The feasibility study then analyzes all acquisition and construction costs, the length of time until a new building would be at break-even occupancy, the cost of funds for construction financing, and the expenses of operating such a building. According to the feasibil- ity study, the building would have to command rents in the range of $28 to $30 per square foot per year in order to be a viable project. Current market rents downtown for similar space range between $19 and $23 per square foot per year.

This constitutes the feasibility study—what will it cost,what must I charge,what will the market pay? The portion of the study that asks “What will the market pay”is the portion with the most risk, the most in need of salesmanship when one is talking to lenders and investors,and the truest test of a seasoned developer with good instincts. In the preceding example, the market may very well respond positively to a new building with rental rates significantly higher than anything else downtown.On the other hand,it might not.One has to choose,in the end,after all the analysis has been completed.

The Complete Real Estate Encyclopedia by Denise L. Evans, JD & O. William Evans, JD. Copyright © 2007 by The McGraw-Hill Companies, Inc.
References in periodicals archive ?
The consultants have prepared feasibility reports on these feasible projects.
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Small and Medium Enterprises Development Authority (SMEDA) has made a feasibility report to facilitate people interested in setting up inland fish farming in the province.
A comparison of PC-1 with the feasibility report showed a substantial variation both in estimates of organisation and management (O and M) costs and forecast of passengers.
The announcement for a tender to prepare a technical-economic feasibility report for the Azerbaijan-Georgia-Romania Interconnector project which envisions supplying Azerbaijan liquified gas via the Georgian Black Sea coast to Romania, Georgian Energy Minister Aleksandr Khetaguri said.
Nicosia, Nov 18 (ANI) The National Iranian Oil Company (NIOC) has formally approved the feasibility report submitted by ONGC Videsh Ltd (OVL) and its consortium partners on the discovery made in Iran's Farsi offshore block, which covers an area of 3,5000 sq km.
British Waterways and local canal societies commissioned a feasibility report on the proposal to revive the Neath, Tennant and Swansea canals.