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Feasibility analyses? What are they? According to the Oxford English Dictionary, a feasibility is a study to determine what is practicable, and/or what is possible. Feasibility analyses do not necessarily provide definitive answers to all property development or investment criteria, nor are they the panacea that every development, property, asset, investment manager or banker would like them to be. The feasibility analysis is the principal mechanism necessary to produce a comprehensive study and a range of results for a particular property scenario; its purpose is to provide a series of checks and balances to determine the viability of an investment proposal, funding package, or property development opportunity.
Every seriously contemplated property opportunity Should be subject to some form of feasibility analysis. Not to do so will increase the risk of acquiring a "white elephant," where potentially lower than budgeted annual retums, or higher operating costs and expenses, vacancy levels, etc., might be incurred, or a loss on sale experienced. The key in making any investment decision is to know as many of the facts.as possible, and to understand and test the many risk variables on facts that have indeterminate limits, prior to having to make the final decision. The feasibility analysis is an instrument by which one can assess and test the facts; it is a medium ptoviding the facility to ask a series of "what if" questions, which may result in further questions and/or provide the answers related to a particular investment proposal.
Following the completion of a well-considered and constructed feasibility analysis, the decision to proceed can be made with confidence, in the knowledge that all the facts and areas of risk have been identified and measured against the client's or banker's investment criteria and industry and market norms for the type of investment opportunity being investigated.
Utilization of, and dependency upon, the "in-depth" feasibility analysis has traditionally waned during periods of buoyancy in the property market (for example, the mid to late 1980s in New Zealand). Hastily considered decisions to proceed often led to mistakes, and upon reflection, a good number of commercial developments completed during this period should never have moved beyond the initial analysis stage.
Over recent years, I have developed a series of computer study models based on my...