When the scale of real estate property investments keep getting bigger, it is inescapable to conduct a feasibility study.
Continuous change in the real estate market challenges investors to think more systematically.
When the scale of projects get bigger and the qualifications become more complex, risks increase. For this reason, as time passes, it became more significant to conduct feasibility study for investment projects.
By looking from investor’s perspective, the objective of feasibility in investments will be maximizing the profit gained from property and services that are put upon the market and minimizing the costs. Particularly, people from different professions such as technical, financial, statutory advisory and economic should work together in the preparation of feasibility study process for big scale real estate projects. However, it is always preferable both in financial and in time respect to take the support of professional appraisal companies related with this subject, since, it may not always be possible for entrepreneur companies because of economic aspects to organize a team having these specialties within the company.
How Project Development Process Operates in Feasibility Study?
The method of project development, particularly used for the lands having no structure on it. In this method, revenues are brought to study date by developing the most appropriate project according to the legal dimension about the land that is subject to appraisal. In reports, selection of the most appropriate project is reported by a summary of extensive feasibility analysis that are done, under the headline of “The Best and most Effective Utilization Analysis”.
Only workableness of one project that is going to be developed on the parcel or the selection of the optimal among other alternative projects is done with a financial approach. In brief, in case of conducting the project, prediction of potential cost and gaining of the project is done. In the light of existing data, project performance and net present value are calculated. Net present value is calculated by so called cost of opportunity which is rate of discount of capital.
For the purpose of analyzing the investor performances; basic measures such as net present value, internal rate of return, profitability index, and payback period can be used. The function of “The Best and most Effective Utilization Analysis” determined by applying these methods to alternative projects. The subjects of financial models that investors prefer, permissible functions in respect with regulation taking part in projects, whether the revenues are provided from leasing or selling reproducing project alternatives.
The Place and Importance of Real Estate Appraiser in Project Development
In project development process, it is beneficial for real estate appraiser to handle the subject with real estate investor’s perspective. In other words, appraiser aims to find The Best and most Effective Utilization Analysis” with a relation of Risk/Return aspect by analyzing the existing usage state of the real estate, zoning conditions, access to urban services and infrastructure, socio-economic structure of the region and physical structure. In order for the appraiser to truly develop the project, in general, appraiser should be provided with a knowledge of “Real Estate Developer” team which is composed of different disciplines that we mention previously. As is known, The Real Estate Appraisers may be urban planner, architect, engineer and economist. Incorporating different professionals together in appraisal companies makes it easy to share knowledge we mention above. Furthermore, because of the intensive job workload, these companies have a comprehensive database about market buying and selling values, regions where the investor supply and demand become intense. Particularly nowadays, appraisal companies have a voice in Urban Transformation activities that investors concentrate on mostly.
To give an example, throughout İstanbul, in big scale renewal areas such as Fikirtepe, Tarlabaşı, Okmeydanı, appraisal companies’ support is much valuable that should be paid sufficient attention. In 2006, Tarlabaşı, which was declared to be an urban renewal area by the decision of the Council of Ministers, it is intended to renew Tarlabaşı’s frazzling historical texture, and renewal studies started with a cooperation between public and private sector. However, the fact that the region is on an archeological site and as a result of this legal procedures affects the processes increases the costs. Professionals should consider the processes of transformation pressure, socio-economic structure change and potential investment expectation to the region in the appraisal phase of the projects.
In conclusion, the process of real estate appraisal includes many risks in relation with the subjects of management, finance, politics, inflation, liquidity and interest rates. In addition to this, development process provides big return opportunities to real estate entrepreneurs. Furthermore; since development process is an investment process, the most significant factor is marketing and market research. For this reason, real estate appraisal firms, having a huge database about real estate market, are holding the position of the most important actor in the process.
Tuğba Aydın – Harmoni Real Estate Appraisal and Consultancy INC.
Urban Planner Real Estate Appraiser