A commercial real estate feasibility analysis is the structured process of determining whether a development project or investment acquisition delivers acceptable risk-adjusted returns. In Ontario's current market environment — elevated construction costs, normalized cap rates and evolving land values — the discipline of feasibility analysis has never been more consequential.
The Residual Land Value Test
The most practical tool in feasibility analysis is the residual land value test: working backwards from expected revenues to determine the maximum justifiable land price. If the residual value exceeds current land pricing, the project has margin. If it falls short, the project needs to be restructured or passed on.
Key Inputs
Revenue projections must be grounded in current market rents or sales values — not aspirational assumptions. Construction costs in Ontario are running $250–$350/SF for industrial and $400–$600/SF+ for mixed-use, depending on specification. Soft costs add 15–25%. Financing costs at current rates are a significant drag on project economics.
Investment Metrics
For income-producing acquisitions, cap rate compression has moderated. Institutional-grade industrial is trading at 5.0–6.5% depending on quality, market and lease structure. Development land is priced on yield-on-cost and absorption assumptions that require careful stress-testing.
The Lucero Approach
Every mandate that Lucero accepts involving development land or investment acquisition goes through a structured feasibility review. This ensures that the pricing, timing and structure of every transaction we execute reflects real-market discipline.