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What is a Proforma/ Feasibility?
LearnCRE.comReal Estate Finance 101
LearnCRE.com
What is a Proforma/Feasibility/Model?
+ A tool for decision making (It does not replace decision making!)
+ A set of data, calculations, and outputs/views
+ A budget over time
+ Income and expenses vs cost
+ A valuation tool
+ Analysis of a real estate business plan
+ Why: We are smart real estate professionals who make profits.
+ How: Critically thinking about costs, income, expenses, value and market conditions
+ What: Using feasibility to do Analysis and Decisions
48
LearnCRE.com
What are basic feasibility considerations?
Business Plans
+ Develop
+ Flip
+ Merchant build
+ Stabilized
+ Value add
49
Property types
+ Industrial
+ Retail
+ Medical
+ Multifamily
+ Hospitality
+ Entertainment
+ Office
+ Single Family
Cash flows
+ Costs
+ Expenses
+ Income
+ Value
LearnCRE.com
What goes into a feasibility? Inputs
50
Income
+ Base Rent
+ Recoverables
+ Extra Income
– Car parking
– Ground lease
+ % of sales
+ Incentives
+ Amortized TI’s
Value
+ Terminal Value
+ Stabilized Value
+ Profit
+ Cost of Sales
Expenses
+ Tax
+ Insurance
+ CAM
+ Fees
Costs
+ Land
+ Infra
+ Predev
+ Shell
+ Leasing / TI’s
+ Finance
+ Fees
+ Expenses
Financial / Capital
+ Interest (Loan)
+ Loan Amount
+ Equity Amount
+ Penalties
+ Term
+ Waterfalls
+ Construction
Debt
Timing
+ Costs Timing
+ Letup period
+ Least term
+ Development
period
Market Conditions
+ Rent
+ Term
+ Incentives – TI
+ Incentives – Rent
Free
+ Letup
+ Cap Rate
+ Growth %
+ Supply / Demand
LearnCRE.com
What goes into a feasibility? Calculations
51
Timing
+ When does cash flow go in and out?
+ When are costs incurred?
+ When is income expected?
Returns
+ What returns are important?
+ How are they calculated?
+ Where are they calculated?
Costs
+ Are certain costs calculated a certain way?
+ $/psft? (shell cost)
+ Lump sum? (marketing)
+ Rate (fees)
+ Grown over time? (hard costs)
+ Calculated based on value? (contingency)
+ Calculated based on time? (property taxes)
LearnCRE.com
What goes into a feasibility? Views
52
Income
+ Summary of
leasing
assumptions
+ Summary of letup
period
Returns
+ Anticipated
Returns
Finance
+ Sources and Uses
+ Loan
Assumptions
+ Equity Waterfalls
+ Equity
Requirements
Budget
+ Summary of
project/acquisitio
n costs
+ Detail of category
costs
Cash Flows
+ DCF Report
+ Capitalisation Report
LearnCRE.com
A simple proforma
53
MARKET ASSUMPTIONS INCOMESqft 100,000
Today Growth 1 2 3 4 5 6 7 8 9 10
Market Rent 7.00$ 4% 7.00$ 7.28$ 7.57$ 7.87$ 8.19$ 8.52$ 8.86$ 9.21$ 9.58$ 9.96$
Market Expenses -$ 3% -$ -$ -$ -$ -$ -$ -$ -$ -$ -$
Market NOI 7.00$ 7.00$ 7.28$ 7.57$ 7.87$ 8.19$ 8.52$ 8.86$ 9.21$ 9.58$ 9.96$
Market Cap Rate 6.00% 0.25%
BUDGET TIMING CASHFLOWS$ $/psft Start YR Stop YR 1 2 3 4 5 6 7 8 9 10
Land 3,000,000 $ 30.00 1 1 $ 3,000,000 $ - $ - $ - $ - $ - $ - $ - $ - $ -
Predevelopment 1,000,000 $ 10.00 1 1 $ 1,000,000 $ - $ - $ - $ - $ - $ - $ - $ - $ -
Infrastructure 700,000 $ 7.00 2 2 $ - $ 700,000 $ - $ - $ - $ - $ - $ - $ - $ -
Hard Costs 4,500,000 $ 45.00 3 3 $ - $ - $ 4,500,000 $ - $ - $ - $ - $ - $ - $ -
Leasing Costs 1,500,000 $ 15.00 4 4 $ - $ - $ - $ 1,500,000 $ - $ - $ - $ - $ - $ -
Total Project Costs 10,700,000 $ 107.00 4 $ 4,000,000 $ 700,000 $ 4,500,000 $ 1,500,000 $ - $ - $ - $ - $ - $ -
Value$ $/psft Value Date
End Value - Stabilized 13,648,350 $ 136.48 4
Profit 2,948,350 $ 29.48
RETURNS/METRICS RETURN CALCULATIONMetric Return Value Date 1 2 3 4 5 6 7 8 9 10
YOC 7.36%
ROC 27.55%
IRR Dev 12.40% 4 $ (4,000,000) $ (700,000) $ (4,500,000) $11,623,413 $ - $ - $ - $ - $ - $ -
IRR 10 YR 10.34% 10 $ (4,000,000) $ (700,000) $ (4,500,000) $ (1,500,000) $ 818,901 $ 851,657 $ 885,723 $ 921,152 $ 957,998 $16,937,411