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Budgets, Cash flow, and Feasibility

Create property development budgets, cash flows, and feasibilities that model income and expenditure, risk, and return sensitivities over the term of the development/investment deal and to establish property value.

Financial feasibility is critical to a potential deal. If it does not ‘pencil’, there is no deal.

When a developer is seeking bids for a project, a preliminary budget is made. This encompasses major costs of a development such as land, entitlements, regulatory fees, hard and soft costs. This gives a developer a ballpark range of what the project is expected to cost. Once a developer selects a general contractor, a detailed ‘post-bid’ budget is formed. This post-bid budget forms the basis of what the project should cost. What actually happens in the field is a different story. Unforeseen costs, most notably change orders, can skew the budget out of proportion. That is why the ‘Budget to Actual’ document is viewed frequently. This document helps with tracking money spent along with allocating costs to specific parts of a development, in residential development the costs would be allocated to each individual lot. In hotel development, these costs would be spread per ‘key’ or room, and so on and so forth for the specific asset being developed. The MLPD program exposed me to these concepts, the documents below are some of the examples that I have worked on.