© JR DeLisle, Ph. D.
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)
Real Estate Market Analysis
Feasibility Process
•
© JR DeLisle, Ph. D.
Definition of Feasibility Problem
– General Problem Statement
– Client Perspective
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Strategic Evaluation
– Positional Analysis
– Selection and modification of Feasibility Model
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Data Selection and Collection
– Capital Market Profile
– Spatial Market Analysis: Macro and Micro
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Preliminary Analysis and Identification of Alternatives
– Spatial Considerations
– Financial Considerations
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Use Filtering and Selection of Most Likely Candidate
– Goodness-of-fit criterion
– Satisfaction of Client Goals
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Refinement of Alternative and Verification of Use
– Product Specification
– Risk Management and Due Diligence
• Implementation, Monitoring and Feedback
Real Estate Market Analysis
The Definition of Real Estate
© JR DeLisle, Ph. D.
Artificially delineated space over time
with a fixed reference point to the earth…
Money-time
Space-time
Real Estate Market Analysis
© JR DeLisle, Ph. D.
Dimensionality of Real Estate
What are the three key dimensions of Real Estate?
S…. E…. L….
Static
Linkages
Environment
S…. E….. L ….
Real Estate Market Analysis
For more info on using in Feasibility Studies, see Case 4: http://jrdelisle.com/cases_tutorials/
© JR DeLisle, Ph. D.
Three Major Attributes of Real Estate
Three major attributes of real
estate . . .
– L,
– L,
– L.
. . . . . . . ulnerable,
. . . . . . . ulnerable,
. . . . . . . ulnerable.
The 2009 regime of real estate . . .
– D . . . . . . . istressed,
– D . . . . . . . istressed,
– D . . . . . . . istressed.
The 2010 + regime of real estate . . .
Butt, what the “L”?
L, L, L
Liability, Litigation, Liquidity (NOT!)
Real Estate Market Analysis
Types of Real Estate Feasibility Problems
© JR DeLisle, Ph. D.
• 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
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Profile investor
Establish investment criteria
Identify alternatives
Match investor to alternatives
Real Estate Market Analysis
For more background, see Graaskamp: A Holistic Perspective at http://jrdelisle.com/research/
Site in search of a use
© JR DeLisle, Ph. D.
• Site in search of a use
– Profile site
– Identify alternative uses and users
– Match most probable user to site
Real Estate Market Analysis
Use in search of a site
© JR DeLisle, Ph. D.
Classify User:
Assess Needs
• Use in search of a site
– Profile user and establish real estate needs
– Identify alternative sites
– Match site to user
Real Estate Market Analysis
Investor in search of involvement
500
© JR DeLisle, Ph. D.
Private Investors
400
REITs
300
200
Pension Funds
100
Foreign Investors
Public Untraded Funds
Life Insurers
0
'97
'98
'99
'00
'01
'02
'03
'04
'05
'06
'07
• Investor in search of involvement
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Profile investor
Establish investment criteria
Identify alternatives
Match investor to alternatives
Real Estate Market Analysis
Ten Steps to Feasibility Site in Search of Use
© JR DeLisle, Ph. D.
1. Problem Statement
2. Situational Analysis
3. Legal-Political-Ethical
4. Physical-technical
5. Dynamic Location Attributes
6. Market Trends and Needs
7. Market Analysis
8. Alternative Site Specification
9. Alternative Site Analysis
10. Project Strategy and Profile
Real Estate Market Analysis
A Definition of Feasibility
© JR DeLisle, Ph. D.
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
Real Estate Market Analysis
For more background, see Graaskamp on Real Estate
Project: Process Overview
© JR DeLisle, Ph. D.
Project Outline: Alternative Uses
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© JR DeLisle, Ph. D.
Project Outline: Market Overview
© JR DeLisle, Ph. D.
• Macro-economic Situation
– General economy and implication
– Real Estate capital markets and capital flows
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
• Regional/Local Market
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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)
Physical
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Financial
Recommended Use
– Most likely use (s)
– Development Strategy
Project Outline: Financial Analysis
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General parameters
Frontdoor/Backdoor
Discounted Cash Flow
Sources of capital
Risk/Return Analysis
Project timing
Real Estate Process
Construction Costs per RSMeans
RSMeans® Preliminary Cost Estimate
•
Site Plan
– Ingress/Egress/Parking
– Building Package/Design
– Elevations….
•
Estimate
Eric's
Project Name:
Description:
Apartments, Low
Rise
SEATTLE, WA
56,000 gross
square feet
Description:
COST BREAKDOWN
Low
Total Project Cost
Site work [Find products]
Masonry [Find products]
Finishes [Find products]
Equipment [Find products]
Plumbing [Find products]
HVAC [Find products]
Location:
Size:
$62.14
Median
High
$4,659,000
$546,000
$219,000
$497,000
University
District
Retail Stores
SEATTLE, WA
11,200 gross
square feet
COST BREAKDOWN
$2,761,000
$247,000
$54,000
$290,000
$3,480,000
$345,000
$134,000
$396,000
Total Project Cost
$89,000
$132,000
Total Mechanical and
$200,000 Electrical
$212,000
$136,000
$280,000
$168,000
$350,000
$247,000
Plumbing [Find products]
HVAC [Find products]
Electrical [Find products]
BackDoor Justified
Electrical [Find products]
Total Mechanical and
Electrical
Per-Unit Cost
Per Unit Mechanical and
Electrical
$159,000
$208,000
$284,000
$552,000
$45,000
$701,000
$68,000
$874,000
$102,000
$8,000
$13,000
$17,000
Backdoor Step 4: Final TRCj Calculation
TRCj =
Proposed Design
© JR DeLisle, Ph. D. RSMeans® Preliminary Cost
Real Estate Process
Project Name:
Location:
Size:
(Gim * NIR)
Wcc
© JR DeLisle, Ph. D.
=84,083*73.5%
0.005642312
$
10,953,168
Frontdoor/ Backdoor Reconciliation
Approach
Frontdoor Budget
Backdoor Justified
Gap to Rationalize
Project Outline: Neighborhood and Market
TRC
Rent/sf
$ Process
10,897,719
12.90
Real Estate
$
10,953,168
12.97
-0.51%
Low
82.28571
Median
High
$542,000
$19,000
$42,000
$48,000
$731,000
$32,000
$58,000
$68,000
$963,000
$56,000
$87,000
$96,000
$130,000
$167,000
$225,000
Project Outline: Static Attributes
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Delineation
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Identify primary trade area; subareas
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General Condition
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Role in market; positioning
Static/Structural Perspective
© JR DeLisle, Ph. D.
Land uses
Physical: age, condition
Tenant mix: who’s in, who’s not
A. Site Profile
Strategic linkages
Size, shape, topography
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Existing and proposed transit
Utilities and infrastructure
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Pedestrian routes; volumes
B. Existing Improvements
Dynamic/Successional Perspective
C. Ingress/Egress
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Life cycle stage
Existing and potential
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Trends
Pedestrian circulation
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Synergies
D. Legal Profile
Implications of Neighborhood/Submarket Analysis
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
Conclusion
Real Estate Process
© JR DeLisle, Ph. D.
Real Estate Market Analysis
Real Estate Process
Step 1: Problem Statement
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© JR DeLisle, Ph. D.
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
Real Estate Market Analysis
Context: Problem Statement
© JR DeLisle, Ph. D.
Real Estate Market Analysis
Investor Profiles
© JR DeLisle, Ph. D.
Real Estate Market Analysis
Step 2: Situational Analysis
© JR DeLisle, Ph. D.
• Strategic Overview
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–
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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?
Real Estate Market Analysis
© JR DeLisle, Ph. D.
Situational Overview
LOCATION:
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Portage Bay
U-District
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Brooklyn Ave NE and NE
Boat St
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UW Campus north of site
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Water to South
ZONING:
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IC-45-US zone
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179,567 sf lot
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50,200 sf max over land
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39,584 sf max over water
Real Estate Market Analysis
Competitive Analysis
© JR DeLisle, Ph. D.
Real Estate Market Analysis
© JR DeLisle, Ph. D.
Step 3: SEL-Physical/Technical Context
Static Attributes
Dynamic Attributes
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Size and shape
Topography
Drainage, water
Soils and subsoils
Utilities
Ingress/Egress
Functional layout
Orientation
Scale & texture
Comfort
Security
Nuisances/Environmental Issues
Real Estate Market Analysis
© JR DeLisle, Ph. D.
Static and Environmental Attributes
Jones ◊ Rappe ◊ Chang Consulting, LLC
Real Estate Market Analysis
Environmental Attributes
© JR DeLisle, Ph. D.
Real Estate Market Analysis
2006 Team B1
Dynamic Location Attributes
© JR DeLisle, Ph. D.
• Geographic Location
– Orientation
– Linkages
– Tributary analysis: connection
• Transportation Access
– Mode
– Physical Access: Walkability
– Travel anxiety or aggravation
• Exposure
– Visual
– Ingress/egress
Real Estate Market Analysis
© JR DeLisle, Ph. D.
Location and General Linkages
Fremont
South Lake Union
Jones ◊ Rappe ◊ Chang Consulting, LLC
Real Estate Market Analysis
23
Linkages and Connectivity
© JR DeLisle, Ph. D.
Downtown Seattle
University Village
University of Washington
Queen Anne
Capitol Hill
S. Lake Union
UW Med Center/Husky Stadium
Project Site
Project Site
• 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.
Real Estate Market Analysis
Micro-Linkages: Ingress/Egress
© JR DeLisle, Ph. D.
Real Estate Market Analysis
© JR DeLisle, Ph. D.
Step 4: Legal-Political-Ethical Constraints
• 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
Real Estate Market Analysis
For more info on implications, see: Case 1: Building Envelope Calculations.
© JR DeLisle, Ph. D.
Parcel Data Search
http://www.metrokc.gov/gis/Mapportal/iMAP_main.htm#
Real Estate Market Analysis
For info on parcel data, see: Tutorial 2: Parcel Tutorial.
Change Rationale: Zoning, Traffic
© JR DeLisle, Ph. D.
Real Estate Market Analysis
Step 6: Trade Area Delineation
© JR DeLisle, Ph. D.
• 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
Real Estate Market Analysis
Trade Area Delineation: Rings are Out
Is this the Trade Area?
© JR DeLisle, Ph. D.
Real Estate Market Analysis
© JR DeLisle, Ph. D.
Trade Area Delineation
15 Minute drive
10 Minute drive
5 Minute drive
SIT
E
Real Estate Market Analysis
Step 7: Competitive Market & Demographics
© JR DeLisle, Ph. D.
• 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
Real Estate Market Analysis
Delineate/Analyze Customized Area
To develop customized trade areas, see: Tutorial 4(b): STDBonline. or
Business Analyst Online
© JR DeLisle, Ph. D.
Real Estate Market Analysis
© JR DeLisle, Ph. D.
Competitive Analysis
Real Estate Market Analysis
To learn how to identify competitors and land uses, see: Tutorial 3: Reverse Directory.
Market Analysis and Synergy
© JR DeLisle, Ph. D.
Real Estate Market Analysis
2006 Team F
Step 8: Alternative Uses/Users’ Profiles
© JR DeLisle, Ph. D.
• 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
Real Estate Market Analysis
For a guide to free demographic data, see: Tutorial 4(a): Easi-Demographics.
Target Market
© JR DeLisle, Ph. D.
Real Estate Market Analysis
Target Market Analyis
© JR DeLisle, Ph. D.
Real Estate Market Analysis
In the End, It’s All About the Numbers
© JR DeLisle, Ph. D.
2006 Team E2
Real Estate Market Analysis
For more info on making numbers “easy to crunch,” see: Case 3: Frontdoor/Backdoor Analysis.
Step 9: Alternative Uses and Scenarios
© JR DeLisle, Ph. D.
Real Estate Market Analysis
For more info, see: The Interactive Design-Marketing Model in Determining Highest and Best Use
© JR DeLisle, Ph. D.
Design Concepts
2006 Team C1
2006 Team A2
Real Estate Market Analysis
2006 Team B1
Alternative Use: Numbers and More Numbers
© JR DeLisle, Ph. D.
2006 Team C1
Real Estate Market Analysis
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.
© JR DeLisle, Ph. D.
Real Estate Market Analysis
Alternative Use Recommendation
© JR DeLisle, Ph. D.
Real Estate Market Analysis
Step 10: Final Use Specification & Packaging
© JR DeLisle, Ph. D.
Real Estate Market Analysis
Final Design and Financials
© JR DeLisle, Ph. D.
Real Estate Market Analysis
For info on fine-tuning DCF, see: Case 5: Discounted Cash Flow Analysis.
Implementation Timeline, Risk Mgmt. and
Marketing
© JR DeLisle, Ph. D.
Real Estate Market Analysis
Exit Strategy and Conclusion
© JR DeLisle, Ph. D.
Real Estate Market Analysis