Feasibility Study Report

Feasibility Study Report helps to conduct an objective and rational analysis of the strengths and weaknesses of a real estate development project.

I’m always being asked about the template for feasibility study report. Many of us know how to conduct a feasibility study but often get confused when it comes to writing a feasibility study report. In this post I’m going to discuss an acceptable template for feasibility study report.

What should be included or excluded in the feasibility study template largely depends on the type of project, funding structure and exit strategy.

If you have a leisure or hospitality project, most probably the developer is going operate it. In this case the operation of the property will consume a large part of the feasibility study report.

Ok, let’s get started.

Part 1: Background or Introduction

You should start feasibility study report with the background of the study organizing information under following heads:

  • Introduction
  • Objectives of the Study
  • Information Sources

You should write small introduction describing the project and client’s instruction. Objective of the study should describe the intent and who commissioned the study and for what purpose. You should also write about the information source – the information which client provided and the information you collected. All the information, either provided by the client or collected by you should be part of appendices.

Part 2: Overview of the project

In this part of the feasibility study report you should cover the basic components of the project. If client has provided the concept drawing, then you should give your opinion and suggestion. If it is a mix-used project, then who decided the product mix? If client has provided the product mix, what do you think about this? If you have done the product mix optimization, you should include complete analysis in this section. If the product mix provided by the client is not optimized, you should optimize it and run a scenario in the feasibility analysis or financial analysis section.

Part 3: Economic Overview of the Area  

This is one of the most important parts of the feasibility study report. The economic overview of the area can be organized under following heads:

  • General Overview
  • Gross Domestic Product
  • Investment Indicators
  • Inflation
  • Population and labor
  • Tourism
  • Any other thing relevant to that particular location and project

The “area” in the “economic overview of the area” can be either the city, or the state or even the country where the project is located. When you are working on a project located in Qatar (Area = 11,437 SqKm, population = 1.85 million) you should cover the whole country. But when you are doing a project in Mumbai (Area = 603 SqKm, population = 12.5 million), you can either cover the city or can go for the state Maharashtra (Area = 307,713 SqKm, population = 112.4 million).

Information for this section can be collected from Bloomberg, Economist and various government publications. Some of the most updated data can be subscribed from the Economist.

In this section of the feasibility study report you should cover the major economic indicators, trends and impact on the project. This is a sort of macro analysis for project location.

Part 4: Site and Location Analysis

This is sort of micro analysis of the project location. The information can be organized under the following heads in the feasibility study report:

  • Site and Location Overview
  • Location Assessment and Accessibility
  • The Location of the Project within the City
  • SWOT Analysis of the Project Site

You should visit the site and check the road connectivity, presence of utilities and other projects in the area. Location analysis for a retail project is entirely a different ball game and we will be covering the same in some other post.

Part 5: Market Assessment

This is another most important part of the feasibility study report. This part will involve lot of data collection, analysis and forecasting. The information should be organized under following heads:

  • Supply, Demand and Projected Absorption
  • Development Concept and Market Fit Analysis
  • Product Mix Overview
  • Product Positioning
  • Competitive Position of Project Site 

You should collect data about current supply, future supply, demand, demand drivers and forecast the absorption of the project components.

If you have suggested a product mix other than the client provided, in this section you should justify it. You should also give your opinion on the product positioning. High-end luxury serviced apartment in a mid-income populated area can be a bad idea. 

Part 6: Operation 

This part will be required if the development will be part of real estate portfolio of the developer. I.e. the developer will be holding it. If the development is for sale, you just have to worry about community charges, and some replacement reserve. If it is hotel, resort or shopping mall it is going to be the part of developer’s portfolio. Information of this section should be organized under following heads:

  • Operator Decision
  • Staffing Issues
  • Various Operating Model
  • Maintenance Issues
  • Other Operational Issues

You need specific industry knowledge to write this section. We will cover some of these topics in future posts.

Part 7: Financial Analysis

This is the heart of the feasibility study report. Here you will do all the financial analysis and report the various performance indicators. The information of this section should be organized under following heads:

  • Supply, Demand and Projected Absorption
  • Pricing Strategy
  • Estimated Required Investment (land cost, development cost, financing cost etc.)
  • Unleveraged IRR or Project IRR
  • Leveraged IRR and Funding Strategy
  • Various Financial Performance Indicators
  • Scenario Analysis
  • Sensitivity Analysis

I have written about some of these topics and will be writing more in near future.

APPENDICES

You should organize other information, calculation, data etc. in this section. It up to you to decide what should be part of main report and what should go in the appendix.  As a general practice you should put the followings in the appendix:

  • Information & Market Data and its Source
  • Unleveraged IRR calculations
  • Leveraged IRR Calculation and Funding Strategy
  • Revenues Forecast
  • Profit and Loss statement
  • Replacement Reserve Calculations

Hope you enjoyed this post about feasibility study template. What do you think, use the comment section below.

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