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Project Feasibility Analysis and the Search for the Juice

Our SCP Advisors group of StoneCreek Partners has prepared hundreds of feasibility studies, for shopping centers, office/industrial, hotels, and an array of specialty-purpose assets.   Over the years, as we apply the traditional feasibility methodologies my refrain for our team is, “where’s the juice?”


At inception as we take on a new feasibility assignment, it is helpful to know a project owner’s real intent in commissioning the analysis.   Sometimes a project sponsor is already convinced of a project’s viability, so a “feasibility report” is intended for a capital raise, or, to refine some aspect of a project’s program.   In other instances, a project owner in the midst of master planning or developing, becomes interested in alternative future project components.   There are numerous other reasons.   The “feasibility sensibility” is really a continuous concern that directly or implicitly drives the design, development, and operation of any particular project (assuming “other people’s money” is not the only capital involved).


No matter the asset class we like to keep asking where the customer demand will really come from, or in short hand, where is "the juice" that will drive the project?


Closely related to an owner’s real intent for feasibility analysis, is determining the best metrics to use.   Is an owner’s focus on cash flow, dividends to equity, and debt coverage?   Or is the expectation of “trophy” appreciation an actual attribute of the asset class?   As an example, over the years we have been involved with several to-be-built California coastal resorts.  In each case, the land values and entitlement costs made for expectations of lean returns on investment (cash on cash).   But, as an asset class, since the days of development of the state’s first coastal hotels there has been a demonstrated record of superior appreciation cycles.    So for this type of investment, it would seem that feasibility analysis should include increased analytics and metris that specifically addresses appreciation expectations particular to this asset class.  Having asset managed numerous Ritz-Carlton and other luxury hotels and resorts, the focus on an owner’s appreciation metric is quite necessary, since owner’s often see year-to-year net cash flow captured primarily by the hotel management company.


In our practice, no matter the asset class we like to keep asking where the demand generation will really come from, or in short hand, where is “the juice” that will drive the project?   Some examples:


  • Office and Industrial -With general-purpose office, flex-tech, and industrial space, the evidence of the feasibility juice is the dynamics of subletting in a particular market, with the direct feasibility juice being the viability of a market’s larger tenants (employers).   It is not difficult to identify the industry growth prospects of major tenant categories in a marketplace, and integrate these prospects with employment growth, supply/demand analysis, leasing velocity, and absorption projections.    In the Bay Area (San Francisco – Jose) at this time, with so many tech firms looking to grow and invest outside of the Silicon Valley’s high cost of living, does historical absorption of office and industrial space (in the Bay Area) really have anything to do future demand?    The tech industries seem to have significant growth prospects, but where?


  • Attractions – I use “attractions” here to refer to the asset class that includes “consumer leisure-time experiences” from outdoor adventure parks, to aquariums, museums, theme parks, and such.   So where’s the feasibility juice?   The typical analysis is to review trade area populations, drive-times, and season-part / day-part type factors to derive attendance (participation) through capture rates derived from other markets and projects.   This benchmarking is a helpful reference.  But to get at the feasibility juice for this asset class, the more direct analysis is to determine for these same trade areas what the “competition is for a consumer’s time” and what this “guest’s trip motivation” may be for visiting a target (subject) project.   On a Saturday morning, a parent interesting in a family outing for the day, will consider a trip to the movies, a mall, batting cages, you name it.    An aquarium or theme park competes to some extent with all other leisure-time facilities in an area, depending on the trip motivation, but capturing only a share of all a consumer’s out-of-home trips.


  • Shopping Centers / Retail Malls – If you’ve been involved with retail market analysis, you’re familiar with Reilly’s law of retail gravitationThe foundational work for the retail industry published in 1931 promulgated the methodology for retail trade area analysis that followed.   Although “at retail” formats have been in continuous evolution since those days (organized retail centers, enclosed suburban malls, pedestrian malls, festival marketplaces, power centers, to name a few), the impact of online shopping has spurred perhaps the most rapid repurposing we’ve seen to-date.    With the repurposing of existing malls to accommodate retail-entertainment concepts, and new malls with all-new anchoring tactics, the current era demands hybrid methods of underwriting retail investment.   The analysis of cinemas and their impact on shopping environments was one thing, but with the possible tenanting strategies proving out  today an analysis closer to mixed-use project studies is what’s required.


  • Film Studios – New film studio development and expansion continues, even as digital production has allowed highly dispersed production teams.     Film studios are an unusually difficult asset class since there usually no long-term leases, secured strategic partnerships, or other revenue sources of an assured long-term nature.    The juice driving feasibility for this asset class is the direct financial and tax incentives offered by local, state, even national government bodies to filmmakers.   So the focus here is on the expectation for continuance by such government bodies of such incentives.


  • Hotels and Resorts – Some thoughts about hotels and resorts are offered in the foregoing.   There are a lot of nuances with lodging since so much depends on the purpose for the accommodations.  Within FIT (free and independent travelers), business, group, and other travelers, each is a separate area for drill-down.   I started my career at KPMG and Laventhol & Horwath before that, where the group of us helped to create the standards for feasibility evaluations of hotels and resorts.   Since those times, while I remain interested in the ADR’s, occupancies, and the like of competitive facilities, I am more interested in how the specific offering at a subject property will attract specific guest-types; essentially, how specifically will the property compete for its share.   And, since we often work in areas of great potential but little track record, we are constantly scouring outside of a subject property’s region for analogous projects where we can reasonably draw some performance analytics to help the underwriting.


There are additional feasibility factors of course.   Barriers to entry in particular markets is a vital part of the analysis, including land values, entitlement challenges, community opposition, and the like.   But the search for the juice, I think it all starts there.


NEXT ARTICLE:  Project feasibility analysis is best when no matter the purpose it is used more as a risk assessment method, where future scenarios are explored that can quantitatively and qualitatively test a project financially.



Our Project Feasibility Consulting Experience



La Costa Ranch MPC

For this prominent master-planned residential community, in North San Diego County, work was in support of company’s overall business planning effort. Client organization was interested in understanding the financial comparison of various build-out strategies, exiting either through bulk land sale, finished lot takedowns to end builders, or hold and develop through end homebuilding. Work included “finished lot vs. builder pad” take-down scenarios.


BCE Development had acquired this North San Diego County master-planned community with substantial remaining build-out inventory, as part of a portfolio acquisition of major land developments. A business plan with detailed market and financial analysis was prepared, for use by California senior management of this major Canadian company, in presenting to the Board of Directors various alternatives for disposition and/or development. One key strategic marketing issue in the business planning effort, was the amount and type of senior housing (independent living, assisted living, skill nursing, etc.) to be included in the land use plan.


The La Costa Ranch property is part of he City of Carlsbad, a unique coastal community located about 35 miles north of the City of San Diego surrounded by mountains, lagoons and the Pacific Ocean. The City’s overall build-out population is about 135,000 residents based upon a total dwelling unit cap ratified by Carlsbad votes in the November 1986 election. While a smaller, coastal community, Carlsbad is the location of multimedia, biomedical, electronic, and light industrial businesses.


Valencia MPC Retail

StoneCreek Partners was retained by a division Marketing Dept. of this major land development company to provide advisory services in connection with ongoing business planning efforts. A focus of the work was the build-out of the retail portfolio of neighborhood and community shopping centers.


The project focused on application of business planning methods to support planned levels of more comprehensive future land development, including builder land residual analysis, methods of consolidating financial data for multiple projects, and aspects of financial reporting to senior management.


Valencia is located in the northwestern corner of the Santa Clarita Valley, a part of Los Angeles County in Southern California. In 1987, it was one of the four communities (along with Saugus, Newhall, and Canyon Country) that merged to create the city of Santa Clarita, California. Valencia was planned and developed over several decades starting in the 1960’s by The Newhall Land & Farming Company. Valencia’s master plan features paseos which allow a resident to travel around the entirety of Valencia without having to cross streets.

North Fontana Redevelopment Project Area

Acting as a real estate consultant, a market analysis was prepared in support of redevelopment project area activities.


The North Fontana Redevelopment Project was originally adopted in 1982 and encompasses approximately 8,900 acres, including major portions of the northern area of the City from Foothill Boulevard to Interstate 15 on the northwest to the City boundaries immediately east of Sierra Avenue.


Banning Lewis Ranch Acquisition

Acquisition and property management of master-planned landholding on behalf of a major offshore investor client, Banning-Lewis Ranch was purchased from the Resolution Trust Corp. for $18.5 million. The property had been assembled, acquired, and held for development by well-known Colorado entrepreneur Frank Aries, through more than $200 million in investment in infrastructure and land purchases. The property was re-sold several years later for $60 million.


Banning-Lewis Ranch is a highly strategic landholding, existing essentially as the entire direction of growth for metropolitan Colorado Springs, encompassing more than 20 square miles along the city’s eastern edge.