What is a Feasibility Study?

The core of any feasibility study, no matter what type of real estate product that you have, comes down to supply/demand analysis. In the case of apartments, for example, it’s looking at the housing stock that’s there, the competitive nature of that stock and then the market conditions.

What is the occupancy level? Where are some of the weaknesses and strengths of that housing stock? Then you should compare that with the demand side, which is generally the demographics and economics of the area. Is there more demand happening than the supply that you have in a market? That’s the ideal situation. Is that demand enough to cater to your particular project? Can you get a fair slice of the pie from that demand or do you have a competitive advantage? Can you get more of that demand than other developers?

The next question is what is going to be the best use of this type of study? Is it going to be for the person that’s doing the ground-up development or am I going to use this same type of study if I’m doing a value-add 80s model apartment buildings? It depends on the person. There’s value from this product at each level, the type of report can be catered to you depending on what your needs are. When you’re getting into an area, you need some initial feedback to let you know, “Yeah, it makes sense to continue.” The data, those market indicators warrant further investigation. Most of these reports are making their way to investors. When they want to invest in a project, they want to see the underlying market data say, “Yes, this is a strong project.” If it’s a long term haul. Did the market dynamic exist for something like that? Especially in those value-added projects and a lot of those older projects that you can come in and buy and fix up a little bit to get more rent, there are a lot of other key factors that you want to look at to say, “Yes, it makes sense to purchase this.” It’s got great access to job centers and shopping, but you’re really looking at the product type. Are the floor plans compartmentalized? Do people feel like they’re coming into a spacious apartment? Are the bedrooms large enough? There’s a lot of small things from a product standpoint that needs to be looked at on every level.

Eventually, the bank is going to want to see that report. There is value at every point. The biggest value to me is the very first assessment, “What markets – or is your market worth looking at?” There are time savings, there are financial savings and then as things go along, there’s not going to be big surprises usually.

This data comes from a wide variety of data sources. The person doing the report will go out into the market, they will talk to people and see things that either validate some of those secondary data points or that are the opposite of those and need to be dug deeper into. In some cases, they can use a demographer, Esri for example. There’s a lot of sources that the city and county reach in the markets, and they get into it – And then, as it relates to apartment surveys, they have staff that will go to each apartment because a lot of the time those big secondary apartment surveys that people subscribe to, although great at a macro level, when they go into the market, they often find that the data is not at the detailed level that most would feel comfortable with it. Many times, they use averages or the information will just be off. When companies that carry out these reports actually visit the property they can identify other things besides what can be found in a national database.

Click the link here to listen to the full podcast: https://lifebridgecapital.com/2019/11/ws379-market-analysis-and-development-consulting-with-pete-disalvo/