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.

References in periodicals archive ?
Should BCDA accept, use or take advantage of the study, either in part or in whole, BCDA shall reimburse the cost for the feasibility study whose amount shall be agreed upon by BCDA and the interested proponent," Casanova said.
To conduct a feasibility study on the needs of at-risk Metis people in Winnipeg.
The feasibility study will review the costs associated with the development of the railway and obstacles like the Mattagami River crossing, as well as the necessary environmental assessment," adds Mark Jensen, director of community development, City of Timmins.
Therefore, the financial pro formas of the feasibility study will take into account the uncertainty about the type of risk adjustment that will be applied to the Medicare capitation in the future.
Therefore, a feasibility study should also include an examination of these benefits.
The outcome of the feasibility study may vary: a decision to go forward or a decision that the original concept is not feasible or that the idea should be set aside for another time.
The project team expects to make their recommendation to city council for the hiring of a firm this summer, subject to receiving confirmation of a government funding contribution for the feasibility study.
The feasibility study is only the first phase of three.
Following the pre-feasibility study, a final feasibility study could last 12 to 18 months, after which a mine would be constructed.