What Developers Overlook in Feasibility Studies

# What Developers Overlook in Feasibility Studies

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# Why blind spots persist and why they compound

A feasibility study is commonly defined as research and analysis to determine whether a project is viable and practicable across economic, financial, market, regulatory, and technical dimensions. [1] The practical challenge is that the output frequently looks precise (a single residual land value, a single IRR, a single "go/no-go"), while the inputs are still in flux—especially scope definition, approvals, site strategy, and infrastructure solutions. [2]

Much of modern development feasibility is organized around the pro forma: a structured comparison of projected income (e.g., rents or sales values) to total development costs. [3] The blind spots occur when the spreadsheet becomes the "source of truth," but the reality of the project is governed by dependencies that are not natively represented in a static model: conditional approvals, third-party utility owners, schedule-driven financing costs, or permit triggers that alter design and timing. [4]

High-quality professional guidance tends to converge on a similar message: feasibility is a risk-and-uncertainty exercise, not just a math exercise. The entity ["organization","Royal Institution of Chartered Surveyors","professional body"] explicitly describes sensitivity analysis and scenario modeling as mechanisms to evaluate how changes in inputs (such as construction costs or sales values) affect outcomes—and emphasizes the need to explain assumptions and variations rather than present a single-point output as definitive. [5]

A closely related reason blind spots persist is that many feasibility teams mix "risk allowances" inconsistently: an undifferentiated contingency added to costs, plus a risk-adjusted discount rate or target profit "to cover uncertainty," can unintentionally double count the same uncertainty. [5] Contemporary contingency guidance from entity ["organization","Engineers Australia","australia engineering body"] likewise frames contingency as an end-to-end management process (determination, allocation, monitoring, reporting) and positions risk-based methods as a way to force explicit validation of key assumptions rather than bury uncertainty inside a single percentage. [6]

The core implication is operational: feasibility should produce two artifacts, not one—(1) an investable pro forma and (2) an assumption register that documents what must be true, what is uncertain, which third parties control inputs, and what would change the answer. This framing aligns with how risk management guidance treats uncertainty as something that must be identified and actively managed, not merely padded. [7]

# Financial assumption blind spots

The biggest financial blind spots are rarely "bad math." They are usually missing line items, mis-specified timing, or a failure to connect uncertainty to the specific variables that drive residual value and lender constraints. [8]

A useful anchor is the structure of development valuation guidance: the entity ["organization","Urban Land Institute","real estate org"] teaches pro forma construction around explicit cost categories (land, hard costs, soft costs, and construction interest), while emphasizing that pro formas are decision tools rather than static ledgers—particularly in pre-development when assumptions are being fixed and refined. [9]

# Under-budgeting the "full cost stack," especially fees and transaction items.

A common feasibility failure mode is a cost model that captures the obvious buckets—land, hard costs, and a generic soft-cost percentage—but misses the long tail of fees and expenses that vary materially by project size, complexity, procurement, and financing structure. [10] RICS explicitly lists categories that are routinely relevant but easy to under-specify early: professional consultants (including planning and environmental), fees connected to statutory requirements or planning agreements, and costs related to raising development finance (including lender monitoring and legal fees). [5] It also notes letting/sales expenses and incentives such as promotion costs, agents' commissions, rent-free periods, or tenant incentives—items that can be material but often get lost between "development costs" and "operating assumptions." [5]

# Treating contingency as a blanket percentage instead of tying it to risk and information quality.

RICS describes contingency allowances as normal for unexpected cost increases, but it also ties the appropriate quantum to the nature of the development, procurement method, and the perceived accuracy of information obtained. [5] In other words: a 5% contingency is not "conservative" if the inputs are weak; it is merely a placeholder that may or may not reflect actual exposure. [11] The 2025 contingency guideline published through Engineers Australia's Risk Engineering Society frames contingency as a lifecycle practice and emphasizes that methods should be selected based on project stage, data quality, and uncertainty—not by a fixed rule-of-thumb. [6]

Double counting risk through both contingency and discount-rate or return "buffers." RICS explicitly warns that contingency can "count input uncertainty risk twice" when uncertainty is also reflected through risk-adjusted discount rates in development valuations. [5] This is a subtle but consequential blind spot: a project can fail on paper not because it is genuinely unviable, but because the same uncertainty has been priced twice in different places. [11]

Failure to stress-test the drivers that swing residual outcomes. The pro forma logic itself implies sensitivity: small changes in important inputs can create large swings in residual value. [8] RICS explicitly recommends sensitivity analysis to test how variations in inputs (such as construction cost or sales values) affect outcomes and supports scenario modeling that bundles multiple changes to reflect optimistic or pessimistic economic conditions, including timing differences. [5] Feasibility studies that present only a single base case—without identifying which variables matter most—are structurally vulnerable to false confidence. [12]

Schedule-driven financing cost is often under-modeled. The "time dimension" is a consistent blind spot: interest and other carrying costs depend on when expenditures occur and how long capital remains outstanding. [13] Even in relatively simple training pro formas, explicit construction interest is modeled as a distinct cost category, and interest rate sensitivity is sometimes treated as a contingency-style escalation (e.g., rate step-ups over time). [14] If the feasibility model does not connect permitting or infrastructure delay risk to interest carry, it can systematically understate required capital and misstate developer returns. [15]

Reserves and capital replacement are often treated as "later," but lenders treat them as "now." Some developers conceptualize reserves as an operational matter rather than a feasibility constraint. In practice, lender and agency underwriting guidance can make reserves a binding requirement that directly affects cash flow and debt sizing. [16] The entity ["organization","Fannie Mae","us mortgage enterprise"] Multifamily Guide, for example, sets expectations that borrowers maintain sufficient replacement reserves for capital replacement and major maintenance and provides minimum determination rules (including a minimum dollar-per-unit floor). [17] The practical blind spot is not just missing the reserve line item— it is failing to understand that reserve requirements can reduce free cash flow and thereby reduce debt capacity, affecting feasibility at the capital-stack level. [18]

# Viability versus land value

Viability versus land value can be conflated, especially where planning obligations apply. Public-sector viability assessments and residual land value exercises can be configured differently (for example, entering a land value to test deficit/surplus versus solving for residual land value). [19] A frequent blind spot is that a deal "works" only under one framing, but the entitlement system may effectively impose obligations that shift the feasible outcome—meaning residual land value, planning obligations, and financeability must be iterated together rather than in sequence. [20]

# Entitlement and regulatory blind spots

Entitlement risk is often under-represented in feasibility because teams treat approvals as a binary milestone ("entitled" vs "not entitled") rather than a chain of deliverables with cost, time, and scope impacts. [21]

Conditions are not footnotes; they are scope, schedule, and cost. Formal guidance on planning conditions emphasizes that conditions attached to approvals must be used appropriately and discharged effectively—implying that conditions create a work program after decision, not a formality. [22] Separate guidance on planning obligations emphasizes early engagement with parties who have an interest in the land and relevant infrastructure providers to prevent delays—another signal that obligations require active coordination, not just legal drafting. [23] When feasibility models treat "approval" as a single date rather than a deliverable chain, they tend to miss the cost and timing of compliance steps that gate permits and start. [24]

Negotiation time can dominate "statutory time." Some systems publish standard decision timelines. For example, UK government guidance states that major planning applications should be decided in no more than 26 weeks and non-major applications within 16 weeks (with related "planning guarantee" policy context), and other UK planning guidance sources provide typical decision-time expectations. [25] In parallel, evidence from industry and planning press indicates that planning obligations negotiations (such as Section 106 agreements) can take far longer than those decision periods; reporting in June 2025 cited research finding average Section 106 negotiation times around 515 days and highlighted extreme outliers measured in years. [26]

The feasibility blind spot is assuming that the published "decision period" is the critical path, when negotiation and post-decision obligations can be the true schedule driver. [27]

Discretionary approvals embed conditionality by design. The entity ["organization","American Planning Association","planning professional org"] describes conditional uses as permitted uses that are allowed subject to compliance with conditions set out in the zoning ordinance, typically to ensure harmony with surrounding uses. [28] This is an important feasibility implication: where a plan relies on discretionary approvals, "getting to yes" often comes with conditions that can affect building program, operations, and off-site commitments—and therefore must be represented as probabilistic scope, not as a deterministic milestone. [29]

Environmental review and specialist permitting are often treated as "consultant costs," but they reshape the project. Where projects involve federal actions in the United States, the entity ["organization","U.S. Environmental Protection Agency","us environmental regulator"] summarizes NEPA review as proceeding through different levels (categorical exclusions, environmental assessments, and environmental impact statements), a structure that implies materially different effort and timelines depending on the pathway. [30] For projects involving wetlands or "waters of the United States," the entity ["organization","U.S. Army Corps of Engineers","us military engineers"] states that Clean Water Act Section 404 requires authorization for the discharge of dredged or fill material into waters of the United States, including wetlands, and EPA likewise describes the Section 404 permit requirement. [31] The feasibility blind spot is not merely the consulting fee; it is failing to identify site or design "trigger points" that switch the project into a more complex review/permit pathway and force redesign, mitigation, or sequencing changes. [32]

Environmental due diligence is sometimes treated as late-stage hygiene, but it is central to value and liability. EPA describes "All Appropriate Inquiries" (AAI) as a process for evaluating a property's environmental conditions and potential liability for contamination, and it states that Phase I environmental site assessments conducted with EPA Brownfields Assessment Grant funds must comply with the AAI rule at 40 CFR Part 312. [33] EPA's December 2022 Federal Register update recognizes the ASTM E1527-21 standard within the AAI framework, and the entity ["organization","ASTM International","standards organization"] standard page emphasizes that Phase I ESAs must be performed by an environmental professional as specified by the standard. [34] When feasibility delays these workstreams until after commercial terms are fixed, the developer can lose negotiating leverage, and what should have been a priced scenario becomes an unstructured contingency. [35]

Approval durability and lapse risk are often ignored in the calendar. In some planning systems, permissions can expire if not implemented within set periods; for example, Planning Portal guidance notes that planning permission generally requires starting development within three years unless permission states otherwise. [36] Feasibility studies that do not translate such durability rules into a practical schedule (conditions discharge → permits → start) can create "paper feasibility" that fails commercially when timing slips. [37]

# Infrastructure and site-services blind spots

Infrastructure blind spots are disproportionately expensive because they involve (1) heavy civil scope, (2) third-party owners and standards, and (3) long lead times that magnify financing carry when the critical path slips. [38]

Impact fees and growth charges are often real cash costs, and they are easy to under-model. The entity ["organization","Federal Highway Administration","us transportation agency"] describes development impact fees as a mechanism designed for off-site public improvement needs associated with new development and notes that they can be incorporated into local planning processes through ordinance. [39] A separate impact fee handbook explains impact fees as charges imposed on new development to generate revenue for capital improvements or facility expansions necessitated by and attributable to that development (distinguishing them from other forms of exactions). [40] The feasibility blind spot is not just "forgetting impact fees," but also failing to match timing (when payments are due), triggers (what increases fee exposure), and interaction with negotiated mitigation. [41]

Utility relocations and utility conflicts are repeatedly identified as major cost and schedule risks.

# Utility Relocation Risks and Management

A 2022 utility relocation white paper published by the entity Federal Transit Administration states that utility relocations often represent some of the greatest risks to scope, cost, and schedule and highlights the need for data acquisition, data management, partnering, and stakeholder relations to reduce delay claims and change orders. [42] The entity Government Accountability Office documented in a 1999 report that many U.S. states compensated contractors for utility relocation delays via schedule extensions and, in numerous cases, paid claims for increased costs—evidence that relocation delays are a recurring driver of cost impacts rather than an edge case. [43] Research on utility relocation cost estimation also notes significant variation between estimated and actual relocation costs in practice, linking that variation to overruns and delivery difficulties. [44]

# Governance and Coordination

Governance is as important as engineering: "who owns it" dictates cost and timing. Utility works frequently require coordination with multiple owners, each with its own standards, review processes, and crew availability. [45] FHWA's utility accommodation program guide contextualizes utility accommodation as policy-driven and administered through state plans and approvals—underscoring that feasibility must understand the administrative pathway, not only the conceptual design. [46] If feasibility assumes "minor relocations" without validating ownership, prior rights, standards, and sequencing, the contingency line becomes a substitute for governance clarity. [47]

# Data Quality and Improvement

Data quality is often the root cause—and there are established practices to improve it early. Guidance based on FHWA utility relocation practices encourages early use of subsurface utility engineering (SUE) to reduce utility conflicts and achieve savings, positioning early SUE as the stage with the greatest potential to eliminate relocation problems. [48] Feasibility that does not budget for early data improvement is making an implicit bet: that unknown utilities will be cheap to solve. The track record in utility relocation literature suggests that is a risky bet. [49]

# Stormwater Compliance

Stormwater compliance is frequently under-modeled as "just civil scope," even though it drives permitting and construction operations. EPA's construction general permit resources emphasize that stormwater pollution prevention plans (SWPPPs) are required under construction stormwater permits and must describe site-specific conditions and plans for development. [50] Construction general permit guidance further describes that operators must implement stormwater controls and develop SWPPPs to minimize sediment and pollutant discharges, tying compliance to federal effluent limitation guidelines requirements. [51] The feasibility blind spot is typically the accumulation: inspection regimes, documentation burden, stabilization sequencing, and rework risk, which affect general conditions and time. [52]

Floodplain and flood hazard constraints are often treated as an insurance line item, but they can be a platform and geometry problem. FEMA's NFIP regulations define an "area of special flood hazard" as land subject to a 1% annual chance of flooding—a definition that frames flood risk as a mapped regulatory boundary, not merely a probabilistic concept. [53] Floodplain practice materials define freeboard as an added safety factor above base flood elevation (BFE) and explain that building with freeboard raises the lowest floor above BFE, affecting design and construction. [54] HUD floodplain management guidance in its environmental review context also frames freeboard approaches as a planning input, reinforcing that floodplain constraints can arise as regulatory compliance steps rather than only as pricing inputs. [55] In feasibility terms, these constraints often materialize as raised finished floors, fill/regrading, access redesign, and stormwater interactions—costs and yield impacts that are invisible if flood risk is treated solely as "higher insurance." [56]

# A workflow that surfaces blind spots early

A strong feasibility process is designed to progressively convert uncertainty into confirmed scope, confirmed approvals, and confirmed third-party commitments —while transparently showing which assumptions remain placeholders. This orientation is consistent with both development valuation guidance (which stresses documenting assumptions and using sensitivity/scenario analysis) and formal contingency management guidance (which stresses selection of methods by stage and data quality). [57]

Build an assumption register that sits above the pro forma. At minimum, the register should capture: assumption statement, source, date, owner, confidence level, dependency, and "what would make this wrong." RICS emphasizes that variations and the rational basis for sensitivity/scenario testing should be clearly set out when reporting development valuations, which is directionally aligned with treating assumptions as explicit, auditable objects rather than hidden cells. [5]

# Translate entitlements into a costed deliverable chain.

Instead of "entitlement obtained," feasibility should map application completeness, studies, review cycles, hearings/decisions, legal obligations, and conditions discharge. Government guidance on planning conditions and planning obligations underscores that conditions/obligations are intended to be used and managed to avoid delays—meaning they represent real program work, not postscript. [58] Where evidence suggests obligation negotiations can take many months (or longer), the deliverable-chain approach is what prevents the schedule model from silently assuming best-case timelines. [26]

# Turn infrastructure unknowns into explicit third-party dependencies.

For utilities, the decision is often less about technical possibility and more about governance: ownership, standards, review queues, and construction windows. Utility relocation literature repeatedly emphasizes data acquisition, data management, and stakeholder partnering as core to avoiding claims and change orders. [59] Subsurface utility engineering guidance reinforces that earlier data improvement offers higher savings and fewer conflicts, which is a practical rationale for spending diligence dollars early to reduce tail risk. [60]

# Make sensitivity and scenario analysis non-negotiable.

Sensitivity analysis is explicitly recommended in development valuation guidance as a way to understand how input changes affect outcomes, and scenario analysis is described as a way to test combinations of changes and timing differences. [5] The operational point is to identify (a) the few variables that truly drive feasibility and (b) the "break conditions" that change capital decisions—such as when a utility upgrade, delay, or planning condition makes the deal fall below minimum return or lender sizing constraints. [61]

# Separate escalation from contingency and align both to stage gates.

Contingency and escalation behave differently: contingency is an allowance for uncertain events/scope and should be tied to the quality of information and quantified risks, while escalation relates to the cost/time relationship and becomes material when approvals or infrastructure shift the calendar. [11] Risk-based contingency guidance emphasizes that determination methods vary by lifecycle stage and data quality, supporting the notion of re-basing contingency at decision gates rather than carrying one blanket percentage indefinitely. [6]

# Stress-test feasibility with "lender-style" and "regulator-style" reviews, early.

Feasibility is more robust when the model is challenged by the disciplines that will ultimately constrain the deal: underwriting expectations for reserves, formal permit requirements (stormwater, floodplain, wetlands), and the practical capacity of third-party utilities. The goal is not to remove uncertainty; it is to prevent invisible dependencies from becoming visible only when they are expensive to fix. Gas station developers frequently underestimate credit card processing fees, which consume 2% to 3% of fuel revenue and can erode most of the fuel margin. RV park developers often overlook seasonal revenue volatility and the infrastructure costs associated with full-hookup sites. Assisted living developers frequently underestimate the staffing costs that drive 65% to 75% operating expense ratios. Car wash developers sometimes overestimate membership penetration rates without adequate competitive analysis.

Many feasibility studies fail because the income approach is applied without proper USPAP-grade rigor. The cost approach is frequently omitted from feasibility studies, even though it provides the critical development viability test. Multi-unit expansion projects, such as salon franchises, face the same feasibility pitfalls as larger CRE developments.

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