What is a Proforma/ Feasibility?

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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

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What are basic feasibility considerations?

Business Plans

+ Develop

+ Flip

+ Merchant build

+ Stabilized

+ Value add

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Property types

+ Industrial

+ Retail

+ Medical

+ Multifamily

+ Hospitality

+ Entertainment

+ Office

+ Single Family

Cash flows

+ Costs

+ Expenses

+ Income

+ Value

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What goes into a feasibility? Inputs

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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

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What goes into a feasibility? Calculations

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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)

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What goes into a feasibility? Views

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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

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A simple proforma

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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