Real Estate Strategic Advisory

While it may largely financial, it is more than an accounting exercise. The typical accounting revenue forecast, cost and expense budget, and cash flow projection is limited to documenting possible outcomes; the feasibility study, in fact, is far more. It is financial in nature, but it complies beyond what the numbers reveal. A lender reviewing a feasibility study should be able to conclude that the risk of financing the project is acceptable.

 It is properly treated as part of a test of the financial potential, risk, and financing required. All of this, which is part of the due diligence process, is aimed at testing the assumptions underlying the project.

The feasibility study is most effective when it includes three key features.

First, the pro-forma number crunching be based on realistic underlying assumptions about financing, costs and rents, and these assumptions have to be critically examined to ensure that they are fair and accurate.

Second, the assumptions used in the feasibility study must be an outgrowth of the market study.

Third, includes a series of metrics so that the reader can better understand the cash flow statement. This could include time value of money calculations such as the Internal Rate of Return (IRR) or Present Value calculations. Other metrics that examine return for both investor and lender should be examined (such as cash-on-cash on both leveraged and unleveraged bases; loan-to-value; and debt service coverage ratios).

Finally, a competent analyst will include sensitivity analyses that show how small changes in underlying variables (i.e., capitalization rate) may result in large changes in project value.

The market study is intended to examine conditions of the local market and to demonstrate, by way of compelling supply and demand factors, that the development proposal is justified. In comparison, a feasibility study questions the financial aspects of the proposed development— cash flow, and likely profit or loss—in order to show potential lenders (or equity partners) that the numbers will work.

The location has a significant impact on the value appreciation of a property and the economic success of proposed developments. Site analysis is a must for the feasibility study, development analysis and valuation.
Site analysis is conducted to determine some features such as accessibility and visibility. It evaluates the locality to determine its value and appropriateness for the proposed development. It helps to make a complete sense of project pricing, and gives you the insights you need to move ahead with no ambiguity.
We use SWOT analysis and site analysis assessment in an easy and understandable way and based on spatial information such as the analysis of the macro and micro-location of the property.

Sensitivity Analysis

• Definition: Sensitivity analysis is a technique used to evaluate the impact of uncertainties or changes in key input variables on investment decisions and project outcomes.
• Purpose: It identifies critical elements with the greatest impact on feasibility, such as costs and returns, allowing for management scrutiny. The goal is to define mitigation measures and further investigate factors that may pose potential risks.
• Application: This technique assesses the effects of changing single or multiple variables on key performance metrics in development appraisals. By directing attention to influential factors, it enables informed decision-making and the implementation of appropriate measures to reduce or eliminate potential risks.

Scenario Analysis:

• Definition: Scenario analysis is employed in the decision-making process to evaluate the impact of changes in possible future events or assumptions on various project outcomes.
• Purpose: By generating different future states, scenario analysis offers vital benefits, including risk avoidance, failure prevention, future planning, and the creation of proactive plans to mitigate or reduce potential losses. It involves analyzing events or situations that may lead to unfavorable outcomes.
• Application: Scenario analysis considers a range of potential future scenarios, helping decision-makers anticipate and plan for different conditions. It aids in understanding how the project may perform under various circumstances, enabling better-prepared and more resilient decision-making