The planning process is the most important part of a New York real estate development project.
One key component of this process is a market analysis (or location study). A market analysis can be broken into three components:
- Physical Analysis
- Economic Analysis
- Location Analysis
In pre-development, physical analysis includes environmental and land characteristics that will impact the feasibility of a development. Navigating New York zoning restrictions (such as height and massing) and allowable adjustments can make or break a project.
Additionally, it is critical to understand considerations such as:
- Soil quality
- Phase I (environmental site assessment)
- Water and sewer access
- Transportation resources
All of these factors can materially impact the cost of construction and size of a new development.
Example 1: Upcoming and recent rezoning, such as the rezoning happening in Harlem, will have a great impact on the amount of build-able square footage.
Example 2: Certain neighborhoods in New York will restrict your ability to build larger units due to school district capacity constraints.
Example 3: Access to New York public utilities can materially impact the size and cost of a new development. Public utilities can only handle a certain amount of daily flow and might limit the number of units in a new development. Additional units or flights might require a developer pay for costly public utility upgrades.
Cash flow modeling and a demand study are part of the economic analysis. New York City’s Building Department will have data about planned new developments that might compete with expected market share. Key demand considerations:
- Does current market vacancy and duration of sales indicate over-building?
- Do demand projections support the current development pipeline and the development in consideration?
Financial models are the backbone of the planning process.
As new data becomes available about building costs and market demand, a cash flow model should constantly be iterated to make sure the development remains feasible.
Some developers make the mistake of believing – “If I build it, they will come.”
The fact is that a multifamily development performs very differently whether you build it in Forest Hills or Sheepshead Bay.
When studying the location of a development, consider:
- The neighborhood’s life cycle – Is the neighborhood in growth, stability, decline, or renewal?
- Population trends – Are residents moving in or moving out?
- What is the AMI, average age, and ratio of families to single households in the neighborhood?
- Crime – High crime areas reduce market rents.
- Target Demographic – Is your target renter interested in the location of your development? Are you building the unit sizes most desired by your target demographic?
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