Feasibility studies and highest-and-best-use analysis

The assumptions are the study

A feasibility model is arithmetic. Its conclusion is entirely a function of four or five assumptions: achievable realisation per carpet square foot, absorption rate, construction cost, approval timeline and finance cost. Everything else is detail.

This is why we spend most of the engagement on the assumptions and comparatively little on the model. A study with a beautifully built cash flow and a realisation assumption three hundred rupees above what the catchment has actually registered is a precise answer to the wrong question.

• Realisation, from registered transactions in the actual catchment
• Absorption, from observed velocity of comparable inventory
• Construction cost, from current tendered rates, not historic ones
• Approval timeline, from what this authority is currently taking
• Finance cost, at terms actually available to this developer

Absorption is the assumption most often wrong

Developers underwrite realisation carefully and absorption casually. The absorption assumption is usually the more dangerous of the two, because it drives the cash flow timing, the peak funding requirement and the interest burden — and because an over-optimistic absorption assumption is invisible until the project is eighteen months in.

A project that sells 400 units in 30 months instead of 20 does not lose ten months of revenue. It carries ten additional months of finance cost on a large exposure, and it usually ends up discounting to recover velocity, which compounds the damage. We model absorption against observed velocity for comparable configurations in the catchment, and we sensitise it hard.

What a downside case should contain

A base case and a slightly worse case are not a downside analysis. The downside case should be a coherent, plausible scenario in which several things go moderately wrong together, because that is how projects actually fail: absorption 25 percent slower, realisation 5 percent lower, approvals four months late and cost 6 percent higher, simultaneously.

We state what that scenario does to peak funding and equity return, and we identify the point at which the project stops being viable. That threshold is the single most useful number in a feasibility study, and it is the one most commonly absent.

Independent review of someone else's study

We are frequently asked to review a feasibility produced by a promoter or a transaction counterparty. It is a short engagement with a high value, because the errors are usually in the same places: realisation benchmarked to asking prices, absorption assumed from the developer's target rather than market evidence, construction cost from an old estimate, and no genuine downside case.

We do not rewrite the model. We state which assumptions we would not rely on, what we would use instead, and what that does to the conclusion.