DISCIPLINE KNOWLEDGE
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
The MLPD program teaches us the different levels of budget, cash flow, and financial feasibility that are important when starting a project, budgeting a current project, and managing a finished project. It is important that a developer understands these financial models in order to control the cash flows, project a favorable IRR, and to acquire the optimal net profit.
We are taught to begin with the financial feasibility through models like “Back of the Envelope.” Assuming the project moves on then we move on to a Discounted Cash Flow analysis model that will use Time Value of Money to value the project and find the internal rate of return. From here we are taught about the different models that are needed to keep a project moving like bid documents and construction budgets.
Below is an assignment that was completed for my LDEV 669 (Income Property Land Development) course. This assignment was a DCF model for a proposed apartment community that we were worked on for most of the semester. We began with the Pro Forma to organize rents and expenses to find the annual NOI. From here we needed to use different methods (loan to value and debt coverage ratio) to best decide the loan we would receive. As shown in the next picture, we needed to organize and balance our hard/soft costs compared to our sources of cash in order to come up with an appropriate contingency amount. We then worked toward our developers and investors’ invested returns. Lastly, our final project (last image in slide show and memo below) was to complete different waterfall model options in order to organize the different investment opportunities that were offered to The Limestone Group.
These financial modeling courses have been difficult, but interesting compared to the 5-years before in Landscape Architecture where I mainly focused on design and construction. I still have quite a bit of room to grow, but Dr. Anderson does an amazing job at teaching so much in our limited time in this program.
