Example Feasibility Analysis

INITIAL FEASIBILITY ANALYSIS    
Justified Cost -- Back Door Approach  
Summary Figure / Calculation Description
Annual rent per rental unit $18.00 Market rent per space unit. Residential typically in dwelling unit but sometimes in square feet; nonresidential always in square feet.
  * Times
Net building area 204,000 Existing or new space based on market demand analysis; net of common areas such as lobbies, halls, elevators, stairs, etc.
  =
Equals
     Potential gross income (PGI) $3,672,000  
  * Times
Gross income multiplier at year of purchase 6.00 Market comparable survey
  = Equals
     Iniital project cost $22,032,000 Project cost supported by market-based rent
  ÷ Divided by
Project to building ratio 1.50 Relationship of building cost to building + land cost based on land cost comparables
  = Equals
     Building cost $14,688,000 Total cost of development
  ÷ Divided by
Gross building area 240,000 Total building area including common areas
  = Equals
Building cost per square foot $61.20 Building cost per square foot supported by rent
Required Rent -- Front Door Approach  
Summary Figure / Calculation Description
Building cost per square foot $70.00 Building cost per square foot based on estimates, survey
  * Times
Gross building area 240,000 Total building area including common areas
  = Equals
     Building cost $16,800,000 Building cost excluding land
  * Times
Project to building ratio 1.50 Relationship of building cost to building + land cost based on land cost comparables
  = Equals
     Iniital project cost $25,200,000 Project cost based on estimates, survey
  ÷ Divided by
Gross income multiplier at year of purchase 6.00 Market comparable survey
  = Equals
     Potential gross income (PGI) $4,200,000 Potential gross income (PGI) needed
  ÷ Divided by
Net leasable area 204,000 Existing or new space based on market demand analysis; net of common areas such as lobbies, halls, elevators, stairs, etc.
  = Equals
Annual rent per rental unit $20.59 Rent needed per square foot to justify investment
Decision-Making Assessment    
Variance of market rent to needed rent    
     Market rent $18.00  
  ÷ Divided by
     Needed rent $20.59  
  = Equals
     Variance 0.87 If > 1.0, positive investment signal; if < 1.0 negative investment signal
Variance of supported building cost to estimated building cost    
     Supported cost per square foot $61.20  
  ÷ Divided by
     Estimated cost per square foot $70.00  
  = Equals
     Variance 0.87 If > 1.0, positive investment signal; if < 1.0 negative investment signal
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