Market Research
Forecasting the overall feasibility and economic potential of any proposed enterprise whether for a consumer product or a large-scale real estate development requires a disciplined approach to market research. Our market research techniques are based on a unique system of analyses to first determine market potential, then tie directly to the feasibility of the practical aspects of the product or development and then to the financial feasibility. Our research will tell you how to “fit” the proposed project to the market, achieve optimal sales, profits, rents or income depending on the nature of the project while recommending the most cost effective development plan. The goal is to right-size your project to the market potential in order to maximize the economic return in light of available capital. The following link will connect you to both our very first research report and a more recent report:
Financial Feasibility
In the process of forecasting financial feasibility of, for example, mixed-use real estate projects the foundation of such forecasts is market research. Market research at this level requires not only evaluation of the depth of the end-user market, but of also of the operations and organizations that will serve the anticipated end users. In the case of retail elements of a mixed-use project, identification and availability of retail operators (tenants) meeting the market profiles is critical. Commercial office space requires an equal level of research to identify potential tenants. Residential elements require identification of the best firms available to create the classifications of residential products envisioned.
Assessment of the research discussed above, forms the basis for projecting the market available to the proposed project as well as reasonable forecasts of the timeframe over which the products of the development will be sold or leased. Without studies to support sales and leasing periods (absorption rates) there is little likelihood of securing financing from sources outside the development group.
Lastly, no cash flow or economic forecasting is possible without knowing the costs to construct / produce and market any proposed enterprise. In some cases our clients already have reasonable estimates of such costs. If not, our experience can be used to produce estimates for purposes of forecasting to be later supported by a professional estimating team.
With market research, absorption rates and cost estimates accomplished, we are then able to project financial feasibility in terms of cash flow and economic return. These forecasts display month-by-month cash flows that may be anticipated from competent administration of the proposed project. We have prepared such comprehensive reports for projects as small as 22,000 square feet of retail space to as large as the 90,000 acre Irvine Ranch mixed-use development in Orange County, California. These studies can also be adapted to particular elements of a development as stand-alone projects; an important option that can provide flexibility in scheduling the development program and accommodating multiple financing sources.
Development Feasibility
Development feasibility is an exercise that assesses issues and conditions that have potential to affect the proposed project. In other words, a hard look at what can go wrong. Through such an exercise, the goal is to manage, reduce, and ensure against potential risk factors. Accomplishing these goals first requires that the risks be identified. In the identification of what can go wrong, there are few substitutes for experience. Our experience initiating large scale mixed-use projects, infrastructure projects such as rail tunnels, international bridges and airports have given us exposure to a variety of adverse circumstances and therefore a learned ability to anticipate such circumstances. The practical aspect of this experience accrues to the benefit of our clients in the form of shortened start-up periods. Moreover, project principals are then in a position to competently address such concerns as may be expressed by lenders and investors. In the final analysis, project principals can present the proposed project feasibility in several dimensions, including all of the disciplines required to complete the proposed project.
Retail Analysis, Research, Tenant mix
Our company has completed retail studies for nearly 150 million square feet of retail space. Studies for these projects are rested our demographic and market research techniques. These techniques include trade area analysis by mile radius and drive-time studies leading to geographic delineation of the area from which 80% of the trade will arise. With the trade area defined, further studies of the income of individuals and families living within the trade area laid against household expenditures across statistically significant merchandise categories leads to a supportable forecast of market potential.
As a result we are able to define types and sizes of retail stores that will be viable within the project and furthermore, accurately predict their sales. Such studies are used by project developers not only to identify the right tenants for the project, but also as a tool to secure leases from those desired tenants. Knowing the desired tenant mix and probable sales performance translates to accurate rental forecasts. In addition, our studies have been used over the years by retail store clients to define market opportunities, perform residual sales analyses and to support retail store location studies.
Merchandise and Optimal Tenant Mix
Our unique skill in predicting sales and lease rates based on demographics and sales ratios have taught us how to optimize tenant mix and space allocations (square feet) per store across twenty-two categories of merchandise. When the proper distribution of stores by type is translated into square footages for each merchandise category, our experience is sales will increase 35%-45% over sales achieved by the prior tenant whose former space in being re-leased. Rental rates adjust accordingly. Our system has been utilized to achieve sales per square foot and commensurate rents as much as 2.5 to 3 times industry averages.
Vehicle Origin Survey (VOS)
The goal of a VOS is to physically determine the residence locations of shoppers or visitors to a particular retail center or store. Such data, collected in sufficient quantity and properly processed will define a geographic area that comprises the trade area for the center or store being studied.
The mechanics of a VOS require that license plate numbers are collected from vehicles parked at the subject center or store. Such data allows us to determine the geographic boundaries of a trade area simply by mapping the locations from which the vehicles originated. VOS data is the basis of several layers of analysis. For example, the number vehicle occurrences per zip code, census tract or block group indicates market penetration by the subject retail center in those areas. Further, by ranking these zip codes, census tracts or block groups we can extrapolate the level of total personal and household income of those currently visiting the subject retail center. From income data we can calculate expenditures by merchandise category for the entire trade area and predict sales by store type and merchandise category.
Similar analyses of competing retail centers in the general area leads to a determination of market potential for the subject center, existing or proposed. Such studies can be the basis for re-leasing an existing center according to a leasing plan that balances store types and sizes to the market. Based on our years of experience, re-leasing in accordance with such a plan will produce sales and rents substantially greater than re-leasing without such constraints. Moreover, the re-leased center or proposed center is likely to gain a competitive advantage over other retail establishments serving more-or-less the same trade area.
Long Range Economic Base Studies
It is our considered opinion that a complete understanding of the economic and demographic forces which shape market opportunities is essential to assessing the development and financial feasibility of a project. The scope of studies ordered for this purpose generally are based on data from a statistical metropolitan area (SMA) or county, depending on which basis government data has been collected. Typically economic data from the most recent fifteen year period is required to reasonably make future projections out ten years.
Major factors in such studies include an analysis of population and demographic trends, personal income trends considering not only income from employment but also other components of income. Trends in employment, factors that can affect future employment, housing demand and permitting and retail sales all figure into developing an economic forecast of the next ten years.
Using studies of this nature we have been able to accurately project market demand for large and small housing developments of all types, retail and office space demand and even industrial space demand. Using our research we have been able to develop ratios to long term employment trends to predict housing, retail, office, hotel and industrial uses for large scale projects such as the Irvine Ranch development in southern California, the Mayeux Ranch in St. Gabriel, Louisiana and a significant number of other new and redevelopment projects since the late 1960’s.
Project Design, Creation and Pre-development Consulting
The combination of our research skills, financial forecasting abilities, development experience and record of organizing commercial and mixed-use projects can be employed by project principals during pre-development or pre-construction phases. It has been our experience that project value and profit can be most directly affected either positively or negatively by decisions made at this level.
Through our affiliations with world-class architects, engineers, planners, designers and consultants all required disciplines are organized, directed and managed to not only create a viable project but to also condense the pre-development timeframe. Projects as varied as international railroad tunnels, toll roads and associated bridge projects, residential / retail mixed-use projects, housing projects, commercial office and hotel developments have been the subjects of our pre-development analysis. We have used the same process in assessing the viability of new town developments; the Irvine Ranch, Orange County, California being the largest of such developments. Such diverse projects as entertainment centers and life-style and traditional regional shopping centers have benefitted from counsel at the pre-development stage. We can even point to an institutional client using our services to recommend an optimal location for an oil refinery.
Special Project and Workout Assignments
Given the difficulties facing traditional developers in defining and managing risks involved in large-scale projects, we often assist institutional lenders, investors and private developers in resolving construction, design or leasing issues after a project is underway. Examples we can point to include office / hotel and other uses in single projects such as Liberty Place, Philadelphia, Renaissance Center, Detroit, Prudential Plaza, Boston and Cheffley Tower, the tallest building at that time in Sidney, Australia. We have also completed renovations of existing projects including Fashion Island Regional Retail Center in Newport Beach, California and the model redevelopment of the downtown area in Holland, Michigan. We have also acted as a construction manager for institutional clients as in the case of the Moran Company, Los Angeles on behalf of AIG. In the area of site location, our skills in understanding the opportunities and constraints inherent in particular sites as well as the pre-development process were utilized in such diverse challenges as placing the western hemisphere’s largest oil refinery in St. Croix, U.S. Virgin Islands and producing site and traffic analysis as part of the feasibility analysis for Sears Tower, Chicago. Our experience in site analysis encompasses sites for millions of retail square footage including over twenty regional shopping centers, numerous K-Mart store locations, grocery stores, box stores and locating mixed-use projects for institutional and private clients.
