*1.2. Scope*

Through the comparative analysis of public and private development projects, the common points and differences between the two types of development projects are analysed in terms of project site selection with the scope of improving operating balance and increasing demand, which have been largely overlooked in the public sector; thus, the measures to ensure the economic feasibility and financial feasibility of public development projects are explored. In particular, since the public and private sectors have different objectives and business development methods, it is important to achieve a balance. We provide basic data for the effective operation of public facilities and to improve the Central Investment Appraisal system. First, among the public development projects, undergoing a Central Investment Appraisal from 2016 to 2019 was a preliminary procedure for large-scale projects in South Korea. Among these, 117 projects [10] were recommended for additional review in terms of location suitability and consideration of environmental factors, such as similar facilities and competing facilities. We investigate environmental factors and conditions, such as basic infrastructure development and environmental factors within a 5-km radius [11], as well as competing facilities. We identify the factors that lead to Central Investment Appraisal success and discuss their implications. For a private development project, the main factors related to the environmental aspects around the project site, along with the indicators that determine the business feasibility of a project before implementation, are examined. We thus identify the determinants for the site selection of private development projects, the selection methods for the development site that need to be considered in public development projects, and the measures that increase profitability and economic feasibility. By comparing private and public development projects, we revise and supplement the research on the determinants of successful bidding for insolvent PF projects conducted in a previous study [9], and among the 484 sites of insolvent PF projects, we analyse the 32 business sites [12] determined by the Korea Asset Management Corporation (KAMCO) that underwent a bidding process in the private sector. Specifically, we derive the factors that lead to successful bidding for private development projects, considering environmental factors within a 5-km radius (Table 1).



#### **2. Theoretical Background**

#### *2.1. The Economic and Financial Feasibility of a Development Project*

An economic feasibility analysis was conducted to maximise the total utility by the efficient allocation of limited resources, with nationwide considerations rather than from the viewpoints of individual businesses. The social benefits received by beneficiaries and social costs were estimated to evaluate social investment efficiency. The target projects for economic feasibility analysis are public facilities, called social infrastructure, including social overhead capital such as roads, railroads, airports, ports, water resources, water supply and sewage, and tourism facilities, which are development projects in the public sector [3]. Regarding the methods of evaluating economic feasibility, decisions are made based on comprehensive considerations, including the benefit/cost (B/C) ratio, the net present value (NPV), and the internal rate of return (IRR). The B/C ratio, which is mainly used as an indicator of economic feasibility in South Korea, is the ratio of the discounted amount of total benefits to total costs; if this value is greater than or equal to 1, it is considered that economic feasibility has been achieved.

The B/C ratio can be derived using the following equation:

$$\text{B/C Ratio} = \sum\_{t=1}^{n} \frac{B\_t}{(1+r)^t} / \sum\_{t=1}^{n} \frac{C\_t}{(1+r)^t}$$

where *Bt* is the social benefit at time *t*, *Ct* is the cost at time *t*, *r* is the social discount rate, and *n* is the analysis period or the duration of the facility project. That is, a benefit–cost analysis is conducted by measuring and comparing the difference between the social benefits from using the applicable facility by an individual user with the number of users and costs (i.e., the total expenses required for the construction and maintenance of the applicable facility). At this time, social costs can be divided into initial project costs and operational maintenance costs. Project costs include not only construction and land acquisition costs but also opportunity costs, considering the loss of benefits that could have been enjoyed if the best alternative was selected. In South Korea, the social discount rate of the economic feasibility analysis is applied at a uniform rate of 4.5% in all cases, and the analysis was performed considering the operating costs over 30 years [5].

A financial feasibility analysis is also called a business feasibility analysis or profitability analysis. It is conducted by an individual business that aims to maximise the assets owned by an individual project development entity. That is, the business entity conducts the development project under its own responsibility to create wealth and charges the price for service provision to users in the form of tolls, entrance fees, and usage fees for a set period, thereby seeking certain profits or returns; profitability is analysed using financial feasibility analysis [3]. The targets for financial feasibility analysis are all the economic activities that generate direct profits among social overhead capital, public facilities, and the private sector, such as individuals or corporations, investing for profit. Financial feasibility is evaluated based on the profitability index (PI), NPV, IRR, and payback period. PI, which is mainly used as an indicator for financial feasibility analysis in South Korea, is a value obtained by dividing the present value of the incoming cash flow by the business by the present value of the outgoing cash flow; if the value is greater than 1, the business is considered financially feasible. The PI can be derived using the following equation:

$$\text{PI} = \sum\_{t=1}^{n} \frac{B\_t}{(1+r)^t} / \sum\_{t=1}^{n} \frac{C\_t}{(1+r)^{t'}}$$

where *Bt* is the incoming cash flow at time *t*; *Ct* is the outgoing cash flow at time *t*; *r* is the financial discount rate; and *n* is the analysis period, which is measured as the duration of the facility business. In financial feasibility analyses in South Korea, the present value is calculated by discounting cash flows at a real discount rate of 4.5%, while PI, NPV, and IRR are calculated based on the present value obtained. However, over the analysis period, quantification is somewhat difficult because the values vary depending on the type of

business or operating period [5]. In summary, an economic feasibility analysis is performed to determine the impact on the public and national economy by measuring the social NPV. That is, income and losses are calculated based on social benefits and social costs, while taxes such as the value-added tax are excluded. Therefore, even revenues that are not actually generated are estimated through shadow prices. In contrast, a financial feasibility analysis measures the NPV of the business entity, and the entity for the analysis is the actor that directly conducts the business or investment. Additionally, only real cash flows are estimated, and various taxes, such as corporate and property tax, are included in the analysis. Furthermore, the analysis is conducted based on the market price rather than the shadow price [13]. The two analyses are summarised in Table 2.


**Table 2.** Comparison between the economic and financial feasibility analyses.

#### *2.2. Literature Review*

To date, few studies have directly conducted comparative analyses on the site selection of public and private development projects [14] because the purposes and directions of project implementations differ for each project type. In the case of public development projects in South Korea, project site selection tends to be determined by political standards or by the one-sided judgement of administrative authorities [15]. Consequently, the comparison mainly entails the extensive administration performed in terms of organisational managemen<sup>t</sup> in the operational stage, while the developments of these two types of projects have been rarely compared [1,16]. However, studies have been conducted from the development project perspective for each project entity and on sprawling development, redundant investment, the direction of the urban development project, operational style, and organisational management. These studies can be largely classified into two categories.

First, research has been conducted on location suitability and environmental factors, such as the presence of competing facilities and duplicate investment for public and private development projects. Site selection analysis has been applied based on the principle of efficient utilisation of limited land, and ecological site selection analysis is regarded as a scientific approach [14]. Among them, a previous study that investigated urban growth and analysed sprawling development for newly developed areas using indicators such as employment potential, distance from roads, distance from a highway entrance, distance from educational facilities, and flood risk is representative. It analysed the suitability of the development level by simultaneously considering the various aspects of land use, such as connectivity, dispersion, density, scattering, and utilisation [17]. Another study measured the development level based on the land use plan in terms of density, continuity, concentration, compressibility, centrality, nuclear, diversity, and proximity in relation to environmental factors and suggested preventing duplicate investment in development [18]. A similar study used four indicators: the population who migrated from urban areas to the suburbs, the population growth rate relative to the increased rate of land development area, the time lost due to traffic congestion, and the area lost to open spaces [19]. Based on location theory, extant research has also assessed the level of sprawling development

related to location by using spatial information indicators such as the distance to an existing development site, distance to roads, distance to city centre, and floor area ratio [20]. One of the representative studies is the analysis of employment potential, using distance from the road, the entrance to the highway, and the risk of flooding as indicators [21]. Moreover, another study demonstrated that accessibility indicators are higher for private development compared to public development based on the psychological space of residents and movement patterns according to distance for residential development under both public and private development projects [14]. A similar study suggested indicators for residential density, residential areas, mix level of jobs and services, suction power of activity centres and downtown areas, and accessibility to road networks [22,23]. It also conducted a comparative analysis based on the distance from main roads, distance from public transportation, development density, and job–housing balance, thus identifying the development status of South Korea and arguing the necessity for the development projects that reflect the actual changes in society. Another study reported on the necessity of considering detailed development of evaluation standards related to site selection in a development project, regardless of whether the project entity is the public or private sector, thus emphasising the impact on the potential of success of a project [24].

Second, in the operating stage—that is, after the completion of the development project—prior studies mainly discussed administration in terms of organisational management. Public development projects face operational difficulties compared to private development projects in the operating stage, owing to their limitation in the continuous generation of profits [25]. A prior study proposed that for a project site where demand is derived by the coexistence of private and public sectors, the harmonisation of sustainable operation and managemen<sup>t</sup> serves as a measure that determines project success [26]. Accordingly, there is a trend to improve operational balance through symbiotic relationships between the two sectors in terms of operations [27]. Most studies mainly reflect the level of spatial segmentation based on the level of infrastructure development as a standard indicator. Many focus on the operating stage rather than on the adequacy of the project site, and the discussion centres around the workers involved in the project and the project operation entity. Additionally, few studies have performed a direct comparative analysis between the two sectors. Therefore, in this study, in the stage prior to the implementation of real estate development projects, project site selection is comparatively analysed between the public and private development projects using quantitative data, and measures for public development projects to ensure economic feasibility and create profitability are explored. To derive variables for sprawling development, issues of redundant investment, and approaches with spatial indicators, all of which are related to site selection, the research themes in previous studies on the environmental factors of the development project were used. To ensure analysis objectivity, we considered a 5-km radius [11], which is a close distance for the consumer in transportation geography, and the derived variables were specified considering actual circumstances. Therefore, this study proposes improvement measures to ensure balanced local financing and the prevention of duplicate investments through optimal location selection for public development projects. The findings can thus support the successful implementation of projects through the selection of suitable project sites and their ramifications, such as deriving necessary projects in the region and assigning priority projects. Moreover, the results are expected to be utilised as the basic data for the implementation and validation of future development projects in countries that do not have an investment appraisal system in place for public development projects.

#### **3. Comparative Analysis of Public and Private Development Projects**

For the comparative analysis between public and private development projects, the variables were selected based on previous studies. Since each project entity has a different purpose and direction for its development project, it was not possible to unify these aspects; however, data were processed to maintain consistency between variables for the comparative analysis. The process variable selection is described below.
