REA Development & Feasibility Analysis

Question 1

What is the primary purpose of a real estate feasibility study?

Accepted Answer

Determining whether a proposed development is financially viable given market, cost, and return parameters

Answer

Assessing the environmental impact of a proposed construction project

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Verifying that a site meets all zoning and building code requirements

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Estimating the market value of land prior to acquisition

Question 2

What does 'highest and best use' analysis determine in real estate development?

Accepted Answer

The legally permissible, physically possible, financially feasible, and maximally productive use of a site

Answer

The most recent development proposal submitted to the planning commission

Answer

The use that generates the highest absolute rental income from a property

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The permitted use with the lowest construction cost per square foot

Question 3

In development underwriting, what are 'hard costs' versus 'soft costs'?

Accepted Answer

Hard costs are direct construction expenses; soft costs are indirect expenses such as architecture, engineering, and permits

Answer

Hard costs are fixed costs that do not change with project size; soft costs vary with building area

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Hard costs are land and infrastructure; soft costs are vertical building construction

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Hard costs are debt service during construction; soft costs are equity return on invested capital

Question 4

What is a 'pro forma' in real estate development analysis?

Accepted Answer

A financial projection of revenues, costs, and returns for a proposed development project

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A legal document describing the property's physical boundaries and improvements

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An appraisal report estimating the as-is value of a development site

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A government-required disclosure of projected lease terms for commercial properties

Question 5

What is 'absorption rate' in the context of a real estate development project?

Accepted Answer

The pace at which available space in a new project is leased or sold over time

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The rate at which construction costs are drawn from the construction loan

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The percentage of project costs financed by debt versus equity

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The rate at which a building depreciates for tax purposes

Question 6

What is a 'development spread' and why is it important?

Accepted Answer

The difference between the development yield and the market cap rate, indicating value creation

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The gap between the construction loan interest rate and the permanent loan rate

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The difference between gross and net rentable area in a development project

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The spread between the going-in and exit cap rates over the holding period