If your company is considering developing land for commercial real estate and needs to ascertain whether the project is viable, our team at Prospectus.com can assist with your property feasibility study. Property and development feasibility study analyses are common for companies to create prior to breaking ground on a construction project. The report will give needed insight to the principals who can then determine whether their project is even ‘feasible’ to continue.
Our seasoned management team employees consultants and engineers to assist with a feasibility project, anywhere in the US and beyond. Our fees are highly competitive and our time frame for completion of such projects is faster than most industry firms, giving our clients a needed advantage when deciding to undertake a real estate or land transaction. Indeed, scores of firms outsource their work to our group as we are known as straight forward and adhere to all budget requirements.
Important Prerequisite for Real Estate Developments
Before spending needed capital on a real estate project, many companies will first need to define their business model. But almost simultaneous to a business plan would be the writing of a feasibility study. Although the costs associated with a feasibility analysis can seem pricey at first sight, not having such a report provided can cost companies many times the amount in loses if a project goes bust. In most cases, such pitfalls can be avoided by writing a feasibility study, especially for property development.
There can be little room for errors when dealing with a land development. Incorrect assumptions on zoning laws or the structural engineering design can bankrupt a real estate project. A feasibility study will outline the requirements needed in order to successfully navigate the many issues that arise in real estate development, whether constructing from the ground up, or tearing down an existing structure and then rebuilding.
Development Assessment – Land and Property
Most real estate firms will conduct a property assessment or a land assessment before committing to development. Such a an assessment will determine if the project is even ‘feasible’ or worth the time and money to continue. A feasibility plan or development assessment for real estate or construction will also outline the costs associated with the overall project. In some feasibility studies, there will also be sales forecasts based on comps, whether for single family or condo home sales, or hotel occupancy rates. The land and property feasibility study development assessment will help clarify the budget and give needed insight into the potential revenue streams as well as the costs associated with construction.
Feasibility Study vs Business Plan
A business plan is regarded as a road map of sorts. For any business to succeed they must understand their market, their numbers, and the opportunity. Business plans are utilized for all types of businesses, including real estate and development related projects. A feasibility study is like a business plan in that it outlines the overall opportunity and allows for an educated decision about whether to move forward or not. As such the feasibility study is the ‘business plan’ for a land or property. Said another away, if the proposed development of land or property had a business plan, it would be called a ‘feasibility study’. Both are imperative for any project to succeed, and certainly to raise capital.
What’s Included in a Feasibility Study
A feasibility entails many aspects of a real estate development project. Whether one is developing a hotel or many single-family homes, or a school, the report will outline anything from the permit process to the land usage rights. Below are some, but not nearly all, features of a real estate feasibility study report, all of which can be classified as undertaking due diligence before construction begins.
- Civil Site and Public Infrastructure Improvements
- Land Use and Environmental Permitting
- Geotechnical Investigation
- Structural Engineering
- Environmental Study and Report
- Survey (boundary, title research)
- Site Planning, Development Program, and Code Review/Compliance
- Traffic Plans, Neighborhood Impacts, Schools in the Area
The aforementioned points are just a glimpse of the many features of a feasibility study.
Why Write or Make a Feasibility Study?
There are numerous benefits to creating a feasibility study. First and foremost, you would want to ensure that you can actually develop on the proposed land. The property zoning laws may permit or prohibit certain features of the project, such as the height and size of the development. Here are few main reasons for preparing a feasibility study for a real estate development project.
- Knowledge: As noted above, knowing whether you are allowed to develop and under what terms will save needed time and capital. If a negative picture is portrayed, then you would stop development. If positive news transpires from the feasibility report then you would continue. Knowing the options is more than half the battle.
- Property Assessment: Before committing capital to any development you would ensure that the concept itself is viable and therefore tested. Conducting a land assessment prior to development can save the company money and time.
- Project Confidence: Similar to writing a business plan, a feasibility can give the principals the needed confidence boost to move forward with the project. If the feasibility report shows promising results, both financially and strategically, this can give convince the team that their assessment for development is correct. This can help when capital is needed to be raised or allocated from investors. A confident management team, with a factual feasibility document in hand, can add great strength to the company’s mission.
- Funding and Capital Raising: As noted, a well written feasibility study, similar to a well written business plan or prospectus, can aid in the strength of the business and alleviate fears from investors and lenders. While the feasibility study is usually prepared for the management team to decide if the given project is even feasible to develop, the document itself can be used as a powerful tool when raising capital and approaching investors.
Financial Feasibility Study for Property Development
During the initial phases of the feasibility study’s development, the writing of the financial projections and budgets needed to implement the feasibility study would be undertaken. Creating the financials at the onset of operations will also benefit the company in terms of making the correct decisions moving forward. If the numbers do not make sense then the project would end. If the numbers work then the project would continue. All the more reason why this feature of the property feasibility report is conducted at the beginning of the process and not the end.
Since the outcome of any business – real estate related or not – is to make a solid return on investment, knowing the ins and outs of the financial feasibility study of the development project makes it imperative to create such a report. Here is some information on the development steps of a property according to the financial feasibility report protocols that Prospectus.com and our clients would undertake together:
Initial Concept Meeting
We would discuss usually via phone (or in person if needed) the project’s details and your needs.
Land and Project Evaluation
Prospectus.com’s team would be undertake an analysis of the overall land and site, including:
- Zoning law
- Land and physical restrictions
- Traffic and access points
- Buildings in the surrounding environment
- Sewage and water
- Competitive summary of new projects and similar existing developments
Description of the Development and Industry Insights
A thorough description of the usage of the land along with the overall industry would be discussed.
A comprehensive market analysis would be undertaken as well. The market analysis section will detail needed information about the market opportunity’s strengths and weaknesses, including:
- Population of the surrounding area and trends, including projected growth
- Age of the demographic and target market
- Income statistics
For tourist developments, additional market characteristics would be detailed, such as:
- Existing market size
- Historical numbers and market growth
In addition to the demographics, a feasibility study would examine existing structures or buildings in the near vicinity of the projected land development. Information would include:
- The location of a similar project
- Development similarities and project description
- Historical financials and pro formas, if available
- Proposed construction costs
Yearly Project Usage Analysis
A detailed summary of the proposed project, usually over a 5 year period. The yearly analysis will include:
- Market size, demographics, etc.
- Competitive analysis
- Analysis of existing similar projects and their positioning
- Project location and parts needed to complete project
- Concept Development and Planning for the Project
Prospectus.com’s team and engineering group would create the necessary plans to market and supply the target market and its future growth. We assist with master planning, as well as the architectural and design plans, including suggesting:
- The types of services offered
- The overall size and functions of the space
- Land and property needs
- Architect plans, diagrams, graphics, videos, pictures, power point presentation or investor deck
A comprehensive real estate financial analysis of the proposed project would be undertaken at this point. The projections would normally take into account the consecutive 5 years, however projections for 10 years out is also common. The financials would include:
- Revenue projections, proforma statements
- Budget expenses, operating projections
- Profit and loss
Project Expenses – Development Recommendations
Prospectus.com will allocate an expense analysis for the entire project. We will give our opinion regarding the feasibility of the overall project.
Preliminary Property Development Feasibility
Often, prior to a comprehensive feasibility study being written or prepared, a preliminary property development feasibility study is written. For those who do not want to spend capital on a more thorough feasibility study, the preliminary report can serve an important function. While it is not as thorough as a feasibility study, the preliminary report will note the costs associated with preparing a full feasibility study. For example, a company that wants to do build a hotel has a $10,000 budget. They do not yet want to pay for a full feasibility study as they would first need to know the costs involved. They would pay for a preliminary property development feasibility study and in this report we would outline the actual costs associated with creating a full comprehensive feasibility assessment report.
Our team at Prospectus can assist with either a preliminary feasibility study or a comprehensive feasibility analysis report. Feel free to reach out to us any time for a free consultation.
- Prospectus Writing
- IPO Stock Exchange Listing
- Bonds Offerings
- Feasibility Study
- 144A Reg S Offerings
- Hedge Funds and Mutual Funds
- Offering Memorandum
- Private Placement Memorandum
- Offering Circular
- Explanatory Memorandum
- Information Memorandum
- Fund Setup Formation
- Securities Identifiers
- Registration and Filing
- Legal Work
- Escrow Services
- Business Plans
Feasibility Study for Commercial Real Estate