Feasibility study of a real estate development project, real estate development is a multi-step process that can be risky, long, and complex, but there are many obstacles that can appear along the path of real estate development and it may take years to bring the project from the initial planning stage to the construction stage to the final completion stage. Where real estate development projects can also be very profitable investment opportunities, so in this article we will talk about the feasibility study of the real estate development project.
Feasibility study of the real estate development project
By definition, real estate development projects provide the scope to offer a product that is not currently in the market and often provides the new offering to satisfy pent-up market demand.
And when this aspect of a development project is well-executed, it can translate into an unruly success story, something that is hardly possible with an existing asset.
Investors can assess some of the risks associated with construction more confidently through a better understanding of the “life cycle” of a development project.
Sections of the project
The real estate development project can be divided into three phases:
1. Early-stage (pre-development):
The first phase of the project focuses on due diligence, research, and permits.
It is often the most variable in duration and investing in this stage involves the largest and most diversified risk due to the presence of many unknowns.
Some of the common steps at this point include:
Environmental assessments
Surveys
Market analysis and feasibility studies
Land acquisition or securing option rights to purchase the land
Site plans, development plans and building plans
Allow
Arrange construction financing
Some infrastructure improvements
2. Intermediate stage (construction):
The middle stage involves building improvements Since the pre-development tasks have been completed, project risks in this stage have been greatly reduced but certainly not eliminated.
Some of the common steps at this point include:
Vertical construction
Relying on construction financing
Marketing the project
Advance rental
Arranging for the property manager (if not done during pre-development)
3. The final stage (operation):
The final stage of the development process, the commissioning, is the first stage in the life of the building.
While the pre-development and construction risks may be removed by this stage, acquiring tenants is still at risk.
Some of the activities during the final stage include:
Find a buyer, if this was not done earlier
Marketing and continuous leasing
Determine your booking strategy, if not selling
Property management intensified
Achieving stability
Financial investment
Includes financial investing and an understanding of:
* Commercial tenant requirements
* Partition laws
* Project management
If you want to make a big fortune in commercial real estate development, it will take you to think carefully about things.
Real estate development is a slow-to-get type of business that requires planning, patience, and perseverance.
Finding the right site for the site and securing the land at a significant cost of the land can take time.
Additionally, a pre-development or due diligence phase can take anywhere, depending on the type and scale of the project, from 3 months to 1 year.
The development/build phase can range from 5 months to 2 years if not longer.
It is extremely important to note that each type of property requires a different set of skills and offers different levels of return.
Thus, when exploring a commercial real estate development project, it is better to match the property to the investor’s strengths than to try to make the investor a fit for the property.
Once you have identified a potential deal, find out how to accurately assess the property based on its condition, requirements, investor requirements, and borrowing power.