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Did you try googling the definition of feasible
Obviously. I'm looking for opinions of professionals so I can get something other than textbook definitions of the term.
It’s literally just hiring a consultant to see if a deal would work out, make money and be FEASIBLE
I wish I could meet you. You are special.
...hiring a consultant to determine if a deal is feasible? Do that shit yourself
Its an understanding if a development has a likelihood of succeeding. There are a few ways to see if something is feasible:
Zoning, can the project actually get approved to be built? Do you need a CUP or other zoning changes? Are their height restrictions? What's your FAR?
Structural stuff, can the engineers actually build it? If you want a 1,500 room hotel on a 2,000 square foot lot- thats not (at least today) feasible. Dumb example but you get the point.
Market demand feasibility. Are you going to build a high rise with $20MM condos in Middle of Nowhere, Forgotten State? No. Could you pull that off in NYC? Maybe. Could you develop affordable housing in Santa Monica, CA and fill it quickly? Absolutely.
Financial feasibility. How much will it cost and whats your returns? If you're getting a 5% levered IRR assuming the market goes up 20% by next year, thats not feasible. However, if you're generating solid returns assuming a middle of the road/ pessimistic view- your project can be financially feasible assuming you're competent with your assumptions. That affordable housing project in Santa Monica would probably fail here unless you got a killer deal on the acquisition. In which case, PM me if you do.
Edit: This is not all encompassing, just some examples.
Agreed, just to add the idea is to show a deal can be profitable and prove to creditors it is worth lending on.
It all falls apart if you can’t show that everyone is going to make money.
This is almost word for word what I said
Appreciate the detailed response and the examples.
a spread between your build cap rate and your sell cap rate.
How do you find out your build cap rate? Is that just the cap rate at project launch, assuming fully leased up?
By build cap rate I believe REPESailor is referring to return on costs. It is the project NOI divided by the Total Project Costs.
The spread between your residual cap rate and the ROC is the developer spread which helps determine feasibility.
@odc" response is correct. depending on the development, industrial, multifamily, office, different spreads are acceptable. In multifamily, in the market today, we are working to get 150 - 200 bps between our build cap rate and our sell cap rate.
Example: ROC is projected to be 6.5%, our sale cap rate is expected to be 5%, the better the spread, the more feasible the project. All the other feasibility that everyone is talking about is just trying to figure out if you can get a spread (if it is merchant development). However, not everyone is trying to make money on a development, different priorities have different definitions of feasibility (a water park has different priorities to a condo development).
If someone asks me for a 'feasibility study' on a plot of development land I go away and round up my architects, engineers and planning consultants. I tell them what I am looking to build in a bit of detail (commercial/resi/leisure) and then they go off and collaborate on what sort of development is possible and pitch a concept/report to me.
If management asks me is the above development 'feasible', they are asking if it is financially viable. So I go away again and look at markets, crunch some numbers and say yes or no!
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