An Introduction to Feasibility Analysis: An Annotated Presentation

Real Estate Market Analysis

An Introduction to Feasibility Analysis:An Annotated Presentation

presented to ASU MRED Program

by James R. DeLisle, Ph.D.February 10, 2010

(annotations modified 2.16.2010)

Feasibility Process• Definition of Feasibility Problem

– General Problem Statement– Client Perspective

• Strategic Evaluation– Positional Analysis– Selection and modification of Feasibility Model

• Data Selection and Collection– Capital Market Profile– Spatial Market Analysis: Macro and Micro

• Preliminary Analysis and Identification of Alternatives– Spatial Considerations– Financial Considerations

• Use Filtering and Selection of Most Likely Candidate– Goodness-of-fit criterion– Satisfaction of Client Goals

• Refinement of Alternative and Verification of Use– Product Specification– Risk Management and Due Diligence

• Implementation, Monitoring and Feedback

Space-time

Money-time

Artificially delineated space over time with a fixed reference point to the earth…

Dimensionality of Real Estate

What are the three key dimensions of Real Estate?

Linkages

Environment

Static

S…. E….. L ….

S…. E…. L….

For more info on using in Feasibility Studies, see Case 4: http://jrdelisle.com/cases_tutorials/

Three Major Attributes of Real EstateThree major attributes of real

estate . . .

– L,– L,– L.

. . . . . . . ulnerable,

. . . . . . . ulnerable.The 2009 regime of real estate . . .

– D– D– D

. . . . . . . istressed, . . . . . . . istressed, . . . . . . . istressed.

Three major attributes of real estate . . .

– L,– L,– L.

The 2010 + regime of real estate . . .

Liability, Litigation, Liquidity (NOT!)

L, L, L

Butt, what the “L”?

• Site in search of a use– Profile site– Identify alternative uses and users– Match most probable user to site

• Use in search of a site– Profile user and establish real estate needs– Identify alternative sites– Match site to user

• Investor in search of involvement– Profile investor– Establish investment criteria– Identify alternatives– Match investor to alternatives

For more background, see Graaskamp: A Holistic Perspective at http://jrdelisle.com/research/

• Site in search of a use– Profile site– Identify alternative uses and users– Match most probable user to site

• Use in search of a site– Profile user and establish real estate needs– Identify alternative sites– Match site to user

Classify User: Assess Needs

• Investor in search of involvement– Profile investor– Establish investment criteria– Identify alternatives– Match investor to alternatives

'97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07

Private Investors

Pension Funds

Foreign InvestorsPublic Untraded FundsLife Insurers

Ten Steps to Feasibility Site in Search of Use

1. Problem Statement2. Situational Analysis3. Legal-Political-Ethical4. Physical-technical5. Dynamic Location Attributes6. Market Trends and Needs7. Market Analysis8. Alternative Site Specification9. Alternative Site Analysis10. Project Strategy and Profile

A Definition of Feasibility

A real estate project is “feasible” when the real estate analyst determines that there is a reasonable likelihood of satisfying explicit objectives when a selected course of action is tested for fit to a context of specific constraints and limited resources.

James A. Graaskamp

For more background, see Graaskamp on Real Estate

Project: Process Overview

Real Estate Process

• Macro-economic Situation– General economy and implication– Real Estate capital markets and capital flows

• Regional/Local Market– Overall state of economy and implications– Real estate market overview; cycle stage, conditions…. – Regulatory environment; political mindset– Growth and trends

• Market structure; overview• Major public projects of note (e.g., light rail, bridges)

Real Estate Process

• A. Site Profile• Size, shape, topography• Utilities and infrastructure• B. Existing Improvements• C. Ingress/Egress• Existing and potential• Pedestrian circulation• D. Legal Profile• Ownership• Easements, if any• E. Controlling legal/political attributes• Zoning, Land Use Controls, Incentives…• Private Restrictions• Other Constituencies (e.g., neighborhood, environmental, planning,

political)• F. Implications

Real Estate Process

• Identification of alternative uses– General statement– Preliminary specifications– General Building Envelopes– TRC, FD/BD Analysis– Site allocation

• Filtering analysis: Evaluation of Alternative Uses– Goodness-of-fit– Stress Tests/Trade-offs

• Market• Legal/Political

Physical• Financial• Recommended Use

– Most likely use (s)– Development Strategy

Real Estate Process

• General parameters• Frontdoor/Backdoor• Discounted Cash Flow• Sources of capital• Risk/Return Analysis• Project timing

Real Estate Process

Delineation• Identify primary trade area; subareas• General Condition• Role in market; positioning Static/Structural Perspective

Land usesPhysical: age, conditionTenant mix: who’s in, who’s not

Strategic linkages• Existing and proposed transit• Pedestrian routes; volumesDynamic/Successional Perspective• Life cycle stage• Trends• Synergies Implications of Neighborhood/Submarket Analysis

Real Estate Process

• Site Plan– Ingress/Egress/Parking– Building Package/Design– Elevations….

• Conclusion

Construction Costs per RSMeans

Project Name: Eric's Project Name: University District

Description: Apartments, Low Rise

Description: Retail Stores

Location: SEATTLE, WA Location: SEATTLE, WA 82.28571Size: 56,000 gross

square feet $62.14Size: 11,200 gross

square feet

COST BREAKDOWN Low Median High COST BREAKDOWN Low Median HighTotal Project Cost $2,761,000 $3,480,000 $4,659,000 Total Project Cost $542,000 $731,000 $963,000 Site work [Find products] $247,000 $345,000 $546,000 Plumbing [Find products] $19,000 $32,000 $56,000 Masonry [Find products] $54,000 $134,000 $219,000 HVAC [Find products] $42,000 $58,000 $87,000 Finishes [Find products] $290,000 $396,000 $497,000 Electrical [Find products] $48,000 $68,000 $96,000

Equipment [Find products] $89,000 $132,000 $200,000 Total Mechanical and Electrical $130,000 $167,000 $225,000

Plumbing [Find products] $212,000 $280,000 $350,000 HVAC [Find products] $136,000 $168,000 $247,000

Electrical [Find products] $159,000 $208,000 $284,000 Total Mechanical and Electrical $552,000 $701,000 $874,000 Per-Unit Cost $45,000 $68,000 $102,000 Per Unit Mechanical and Electrical $8,000 $13,000 $17,000

RSMeans® Preliminary Cost EstimateRSMeans® Preliminary Cost Estimate

BackDoor JustifiedBackdoor Step 4: Final TRCj Calculation

TRCj = (Gim * NIR)Wcc

=84,083*73.5%0.005642312

10,953,168$

Frontdoor/ Backdoor Reconciliation

Approach TRC Rent/sfFrontdoor Budget 10,897,719$ 12.90 Backdoor Justified 10,953,168$ 12.97 Gap to Rationalize -0.51%

• Strategic Overview• Nature of Decision• Goals and Objectives• Business Considerations• Constraints• Scope of Analysis

– Inclusive vs. exclusive approach– Dynamic vs. static approach– Stochastic vs. deterministic

Context: Problem Statement

Investor Profiles

• Strategic Overview– Macro-economic Environment– Capital Market Environment– Spatial Environment– Space User Environment

• Preliminary Site Assessment– Situational Analysis: The Context– Positional Analysis

• Context in which it fits/operates• Draws on Structure, Succession and Situs Theory

– Opportunity Analysis: What it could be?

Situational Overview

LOCATION:• Portage Bay

U-District• Brooklyn Ave NE and NE

Boat St• UW Campus north of site• Water to South

ZONING:• IC-45-US zone• 179,567 sf lot• 50,200 sf max over land• 39,584 sf max over water

Competitive Analysis

Static Attributes

• Size and shape• Topography• Drainage, water• Soils and subsoils• Utilities• Ingress/Egress

Dynamic Attributes

• Functional layout• Orientation• Scale & texture• Comfort• Security• Nuisances/Environmental Issues

Static and Environmental Attributes

Jones ◊ Rappe ◊ Chang Consulting, LLC

Environmental Attributes

2006 Team B1

Dynamic Location Attributes

• Geographic Location– Orientation– Linkages– Tributary analysis: connection

• Transportation Access– Mode– Physical Access: Walkability– Travel anxiety or aggravation

• Exposure– Visual– Ingress/egress

Location and General Linkages

South Lake Union

Fremont

Jones ◊ Rappe ◊ Chang Consulting, LLC

• Easy vehicle, bus, bicycle access to University District via Eastlake Ave E.• Easy vehicle, bus, bicycle access to Downtown, Capitol Hill, S. Lake Union, Queen Anne.• Eastlake Ave: heavy traffic commuting between Downtown and U. District. 30,000 vehicle trips/day.

University Village

University of Washington

UW Med Center/Husky Stadium

Project Site

Downtown Seattle

Project Site

Capitol Hill

S. Lake Union

Queen Anne

Micro-Linkages: Ingress/Egress

• Legal-Political-Ethical Tie– Constraints by law: Legal

• Site constraints• Enterprise constraints (users)

– Constraints by Market• Capital Market & Investor Constraints• Community constraints

– Ethical/Political Constraints• Sustainability and the irretrievable resource commitment• Goodness of Fit

• Dynamic Nature– Many constraints are subject to change/negotiation– Final binding constraints involve trade-offs of legal/political/ethical

For more info on implications, see: Case 1: Building Envelope Calculations.

Parcel Data Search

http://www.metrokc.gov/gis/Mapportal/iMAP_main.htm#

For info on parcel data, see: Tutorial 2: Parcel Tutorial.

Change Rationale: Zoning, Traffic

• Micro: Region/City/Sub-market– Spatial trends

• Community or regional growth, spatial skewing, scale and timing• Structure: Sub-market relationship to broader economic base

– Economic Base • Employment: composition, drivers, growth• Elasticity: sensitivity of growth to economic conditions

• Market Segments– Current Market Segments– Projected Growth by Market Segment

Trade Area Delineation: Rings are Out

Is this the Trade Area?

Trade Area Delineation

5 Minute drive

15 Minute drive

10 Minute drive

Step 7: Competitive Market & Demographics

• Competitive Analysis– Supply– Mix/Pricing

• Market trends and opportunity areas– Aggregate data on local population, employment, income, etc.– Industry trends relevant to the project– Significant popular attitudes and trends in location market

Delineate/Analyze Customized Area

To develop customized trade areas, see: Tutorial 4(b): STDBonline. or Business Analyst Online

Competitive Analysis

To learn how to identify competitors and land uses, see: Tutorial 3: Reverse Directory.

Market Analysis and Synergy

2006 Team F

• Identify Preliminary Uses– Major property types: retail, office, warehouse– Secondary Property sub-types

• Profile preliminary users– Internal Analysis

• Entities & packets of functions• Drivers of Value• Trends & Life cycle stage

– Real Estate Elements• Spatial needs & internal vs. external orientation• Approach to real estate solutions

For a guide to free demographic data, see: Tutorial 4(a): Easi-Demographics.

Target Market

Target Market Analyis

In the End, It’s All About the Numbers

2006 Team E2

For more info on making numbers “easy to crunch,” see: Case 3: Frontdoor/Backdoor Analysis.

Step 9: Alternative Uses and Scenarios

For more info, see: The Interactive Design-Marketing Model in Determining Highest and Best Use

Design Concepts

2006 Team A2

2006 Team C1

2006 Team B1

Alternative Use: Numbers and More Numbers

2006 Team C1

To get your costs in line, see: Case 2: Total Replacement Cost Analysis.

Most Fitting Use: An Integrated Approach

For more info, see: Case 6: Most Fitting Use.

Alternative Use Recommendation

Step 10: Final Use Specification & Packaging

Final Design and Financials

For info on fine-tuning DCF, see: Case 5: Discounted Cash Flow Analysis.

Exit Strategy and Conclusion

An Introduction to Feasibility Analysis: An Annotated Presentation

Documents

Annotated Bibliographies - APA, MLA, Chicago1 · ANNOTATED BIBLIOGRAPHIES Much like the References or Works Cited section of a research paper, an annotated bibliography is an alphabetically

ANNOTATED BIBLIOGRAPHY Research Project Sources Used: writing-an-annotated-bibliography

William Morris: An Annotated Bibliography 1998-1999 · William Morris: An Annotated Bibliography 1998-1999 ... William Morris" An Annotated Bibliography: ... of the Victorian age,

Marine pipelines: An annotated bibliography

Public Interest Design: An Annotated Bibliography

An Annotated Bibliography of The United States Marine ... Annotated Bibliography... · MARINE CORPS HISTORICAL BIBLIOGRAPHY An Annotated Bibliography Of THE UNITED ... An Annotated

How to Write an Annotated Bibliography

Mass Incarceration: An Annotated Bibliography

1981 - Bibliographies - AN ANNOTATED …libraryarchives.metro.net/DPGTL/usdot/1981-an-annotated...publication to An Annotated Bibliography of Commuter/Regional Rail, February 1981,

AN ANNOTATED BIBLIOGRAPHY OF PUBLISHED · PDF fileINDEX WORDS: saxophone, violin, extended techniques, annotated bibliographies . AN ANNOTATED BIBLIOGRAPHY OF PUBLISHED WORKS FOR SAXOPHONE,

An Annotated Bibliography of South Sudan

From Annotated Bibliography to Literature Reviewanu.brighid.idc.ul.ie/CS4009_2019/Slides/Lecture4Annotated-LitRevie… · Annotated Bibliography vs. Literature Review p An annotated

cylinder audio recordings 'an annotated bibliography

Family Resilience: An Annotated Bibliography

WordPress.com · An Annotated Bibliography Create an annotated bibliography that lists the research sources you have used for your exploratory project. Because annotated bibliographies

An Annotated Bibliography (October, 2011)

Chicano Literature: An Introduction and an Annotated Bibliography

Mangroves: An Annotated Bibliography

An Annotated Bibliography of Phenomenographic Research: …eprints.qut.edu.au/42048/1/PhenomenographyBibliography2011.pdf · An Annotated Bibliography of Phenomenographic Research:

John Huehnergard - An Annotated Bibliography