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 feasibility study will define the mechanisms of financing and if it will be private limited company or PPP enterprise, he said.
As a customer of the feasibility study project, TAVANIR, upon an agreement with Rosseti and Azerenergy, will determine the feasibility study developer among the companies with relevant experience in similar works in the electric power industry.
Last June, the Provincial Development Council (PDC) of Negros Occidental endorsed the conduct of the feasibility study during its second-quarter meeting held in this city.
The RDA would get Rs80 million for the feasibility study from the provincial government under the annual development programme.
"Please note that this grant is merely for a feasibility study. The implementation phase will proceed based on the results of this study," it added.
Sources said after the signing of MoU, Russia's gas titan Gazprom will assess the viability of the project as Pakistan's federal cabinet has also allowed the Gazprom to conduct a feasibility study at its own cost and risk.
The other two agreements included feasibility studies for the establishment of agriculture production and marketing company, creating an integrated environment serving farmers in the sultanate, as well as the feasibility study for a logistics company that will focus on exploring opportunities in logistic services.
Rs250 million for conducting the feasibility study and design.
Shumail Khawaja said that they had approached China for bringing Diamer-Bhasha dam under China-Pakistan Economic Corridor but China raised several issues including the location of the dam in a 'controversial area' and a fresh feasibility study of the project etc.
Editor's note: This article is excerpted from "Vital Steps: A Cooperative Feasibility Study Guide, " Service Report 58, -which has been newly revised.