We all know feasibility studies are crucial to properly evaluate a site before purchase.
But why are they so darn slow?
The traditional method of conducting a feasibility study in multifamily real estate is broken. It’s painful for the real estate developer. The architect. The GC. The investors. The land seller. No one’s making money on it. Yet.
And guess what? As more firms turn to rapid design iteration tools like TestFit, the final wheel of the traditional feasibility study wagon is going to come off – securing that site before the competition does.
In this article, we’re going to pinpoint the major problems (without pulling any punches) of why the traditional feasibility study process sucks for all stakeholders. Then we’ll show how much speedier and – downright fun! – the process can be with instant design iteration.
Problem #1 - It’s a big ecosystem
As you can see from the illustration of the average multifamily deal above, every feasibility study involves a lot of consultation. Not just on the first design iteration, but on all the iterations that come back when the developer doesn’t like the yield-on-cost. Or the Land Owner wants way more for your chosen site. Or the engineer says your design just can’t be built like that. Or the city has a new vision for your favorite site.
Each one of these little “back and forth arrows” above represents anywhere from 1-4 weeks, depending on how many stakeholders are involved in the redo. You can see how this can quickly compound.
X design changes at Y phase requiring Z stakeholders = months or YEARS
Problem #2 - The architectural bottleneck of feasibility
We’re going to call a spade a spade. The single area that slows down this process the most is the poor architect who is trying, with AutoCAD, or Revit, or Rhino, to piece together a new design iteration that encompasses everyone’s feedback, from the developer’s Excel model to the city’s variance. This process can take 1-2 weeks. Every. Single. Time.
The puzzle that is multifamily takes a long time to solve.
And traditional BIM / CAD software tools do NOT make the splicing of different unit plans together any easier.
Problem #3 - Everyone needs to make money
That architect working his or her tail off is probably not charging for the feasibility stage. If they are, they probably aren’t covering costs. It’s typically viewed as an opportunity cost to win the project.
Depending on the size of the GC, the closeness of their relationship with the developer, and /or size of development shop, they may or may not be charging for the work. But most of all, everyone in this process is wasting time. Time that could be spent on billable work. Time that could be spent evaluating designs that the developer knows will pencil financially.
What DO we need?
In short, feasibility studies need:
Better design options
With the ability to quickly make changes
Multifamily Feasibility Studies 2.0
Imagine instead, if the feasibility stage on your next multifamily project went like this:
- The real estate developer is on the hunt for a new site (always!).
- Their broker finds 2-10 sites that seem suitable to the developer’s requirements.
- Developer decides to investigate two sites based on their market understanding.
- Architecture firm is briefed, and does their due diligence on zoning, setbacks, easements and other constraints.
- The architect comes up with some starting concepts in TestFit in minutes based on the briefing where they can immediately see financial metrics like net rentable, FAR etc.
6. The architect does a real-time-deal prototyping session with the developer (and maybe even the city and/or other key stakeholders early on to make sure on the right track) where they instantly run through design iterations to come up with 1-2 solutions that pencil financially. Or the deal is killed right away and we’ve mitigated wasted time from the get-go.
7. The real estate developer runs market studies while GCs and engineering teams confirm design feasibility and estimate cost. *We are hoping to use 3rd party integrations to improve costing accuracy in TestFit, like this hackathon prototype with Join.build.
8. The architect makes any changes as appropriate rapidly in Testfit, then works up more detailed designs by exporting the TestFit building(s) to Revit / SketchUp etc. * Alternatively, the developer may be doing these test fits in-house, and at this phase, bring in the architect to work up concepts they know will pencil. Still less time wasted for the architect on deals that won’t pencil.*
9. Create fundamental presentation materials like renderings and excel models.
10. Presentation to key investors, as well as stakeholders such as the city, land owners etc.
11. Proceed with purchase of land OR make design changes rapidly OR kill the deal.
12. Pass the design and model on to the architect for schematic design.
Each design iteration takes minutes to change instead of hours. The key financial metrics like net rentable, Yield on Cost, FAR, etc. are instantly visible within TestFit so the developer will know if the deal pencils or not and doesn’t waste the time of any consultants with sites that don’t pencil.
Everyone spends less time on deals that won’t lead to $$$$$$$$$$ down the line. And less time on those that will, as well. What will you do with YOUR time saved?
Seeing is believing
New to the concept of feasibility studies? Here are some good resources for Real Estate Developers, Architects, and General Contractors starting out. If you’re new to test fitting, both in concept & practice, check out our Crash Course in Test Fitting.
Want to know more about our thoughts on the concept of broken feasibility studies? Check out this excerpt (until about 20 minutes) of our CEO Clifton Harness being interviewed on BIM After Dark by The Revit Kid.