Calculating Financial Success with Development Pro Forma Analysis

Financing can be a frustrating aspect of construction projects, especially when there’s uncertainty about the returns developers should expect after the build is complete. To help alleviate concerns and encourage confidence, a development pro forma analysis can be completed by professional engineers like the team at McClure.

To generate useable information, the engineers drafting a pro forma should possess exhaustive knowledge about a project’s quantifiable details. When implemented early on in the process, a pro forma offers a sense of financial security and can help identify problems with securing funding or maintaining expenses.

What Are Development Pro Formas?

Essentially, a pro forma analysis attempts to forecast the finances a project could expect to encounter, including construction costs, daily operating expenses, and potential revenue. Because the analysis includes a large amount of speculation, accurate information is vital. The engineer compiling the pro forma should consider as many variables as possible if they’ll have a measurable effect on finances.

The problem is that many of these variables change over time. In fact, the costs of a construction project are changing constantly, especially as plans are revised or if current materials aren’t adequate for the building’s needs. A professional engineer will take these changing conditions into account as best they can. Ideally, a pro forma’s timeline should be plotted out several months in advance.

In general it’s best to start a pro forma analysis early on in the project’s schedule, such as the Due Diligence and Feasibility Stage. This allows plenty of opportunities to review the pro forma as the project evolves and adjust the analysis if necessary. A good rule of thumb is to reassess the pro forma on a monthly or at least quarterly basis.

The finances pro forma analysis takes into account may include:

  • Project timelines: A project’s timeline has a cascading effect on the labor costs of contractors, suppliers, and other workers. An accurate timeline can provide engineers with a rough idea of how to factor labor into overall project costs.
  • Hard costs: These expenses are expected and fixed, like the rates of labor or the cost of a material. The variability of a project’s timeline can cause these costs to fluctuate.
  • Soft costs: Soft costs are more indirect and can include professional fees or interest payments on loans. If an expense is not directly related to construction, it can be considered a soft cost.
  • Projected revenue: Many projects are commercial buildings offering services or finished products. Engineers can use the planned prices for these services/products to generate a rough idea of potential revenue.
  • External financing: All sources of funding should be accounted for in pro forma analyses. This includes equity, such as the funds developers offer themselves, as well as debts incurred from construction loans.

Securing Additional Financing

The discovery that current financing is inadequate can be frustrating. When completing a development pro forma analysis, McClure can help developers identify additional sources of funding and secure them for the project. This could involve engaging the local community or reviewing relevant tax regulations for missed opportunities.

Tax Increment Financing

Tax increment financing, or TIF, is a form of subsidy used for a wide range of development projects. With TIF, municipal governments divert a percentage of the revenue they expect to receive from property taxes collected from a predetermined area. This TIF district consists of other properties paying tax and may form the bulk of funds collected from TIF.

Financing can also be diverted from the tax revenue the completed project is expected to provide. As such, a comprehensive pro forma can provide enough information for a municipality to feel confident offering TIF.

Community Improvement Districts (CID)

A Community Improvement District (CID) functions similarly to a TIF district. Within a CID, nonresidential properties pay additional taxes or fees designed to improve buildings, infrastructure, and/or services within the rest of the district. These funds could be used to keep properties clean, plant additional landscaping, or in this case, support other construction projects within the CID.

Special Benefit Districts

Lastly, developers can utilize Special Benefit Districts for infrastructure-based projects. A benefit district stipulates that property owners fund the construction of infrastructure their properties or businesses benefit from. This could include new roadways, sewer systems, and sidewalks. Instead of paying for all infrastructure growth within a city or county, property owners within a Special Benefit District will only pay for infrastructure they can directly benefit from.

Calculating Financial Success with Development Pro Forma Analysis

Financing can be a frustrating aspect of construction projects, especially when there’s uncertainty about the returns developers should expect after the build is complete. To help alleviate concerns and encourage confidence, a development pro forma analysis can be completed by professional engineers like the team at McClure.

To generate useable information, the engineers drafting a pro forma should possess exhaustive knowledge about a project’s quantifiable details. When implemented early on in the process, a pro forma offers a sense of financial security and can help identify problems with securing funding or maintaining expenses.

What Are Development Pro Formas?

Essentially, a pro forma analysis attempts to forecast the finances a project could expect to encounter, including construction costs, daily operating expenses, and potential revenue. Because the analysis includes a large amount of speculation, accurate information is vital. The engineer compiling the pro forma should consider as many variables as possible if they’ll have a measurable effect on finances.

The problem is that many of these variables change over time. In fact, the costs of a construction project are changing constantly, especially as plans are revised or if current materials aren’t adequate for the building’s needs. A professional engineer will take these changing conditions into account as best they can. Ideally, a pro forma’s timeline should be plotted out several months in advance.

In general it’s best to start a pro forma analysis early on in the project’s schedule, such as the Due Diligence and Feasibility Stage. This allows plenty of opportunities to review the pro forma as the project evolves and adjust the analysis if necessary. A good rule of thumb is to reassess the pro forma on a monthly or at least quarterly basis.

The finances pro forma analysis takes into account may include:

  • Project timelines: A project’s timeline has a cascading effect on the labor costs of contractors, suppliers, and other workers. An accurate timeline can provide engineers with a rough idea of how to factor labor into overall project costs.
  • Hard costs: These expenses are expected and fixed, like the rates of labor or the cost of a material. The variability of a project’s timeline can cause these costs to fluctuate.
  • Soft costs: Soft costs are more indirect and can include professional fees or interest payments on loans. If an expense is not directly related to construction, it can be considered a soft cost.
  • Projected revenue: Many projects are commercial buildings offering services or finished products. Engineers can use the planned prices for these services/products to generate a rough idea of potential revenue.
  • External financing: All sources of funding should be accounted for in pro forma analyses. This includes equity, such as the funds developers offer themselves, as well as debts incurred from construction loans.

Securing Additional Financing

The discovery that current financing is inadequate can be frustrating. When completing a development pro forma analysis, McClure can help developers identify additional sources of funding and secure them for the project. This could involve engaging the local community or reviewing relevant tax regulations for missed opportunities.

Tax Increment Financing

Tax increment financing, or TIF, is a form of subsidy used for a wide range of development projects. With TIF, municipal governments divert a percentage of the revenue they expect to receive from property taxes collected from a predetermined area. This TIF district consists of other properties paying tax and may form the bulk of funds collected from TIF.

Financing can also be diverted from the tax revenue the completed project is expected to provide. As such, a comprehensive pro forma can provide enough information for a municipality to feel confident offering TIF.

Community Improvement Districts (CID)

A Community Improvement District (CID) functions similarly to a TIF district. Within a CID, nonresidential properties pay additional taxes or fees designed to improve buildings, infrastructure, and/or services within the rest of the district. These funds could be used to keep properties clean, plant additional landscaping, or in this case, support other construction projects within the CID.

Special Benefit Districts

Lastly, developers can utilize Special Benefit Districts for infrastructure-based projects. A benefit district stipulates that property owners fund the construction of infrastructure their properties or businesses benefit from. This could include new roadways, sewer systems, and sidewalks. Instead of paying for all infrastructure growth within a city or county, property owners within a Special Benefit District will only pay for infrastructure they can directly benefit from.

WHERE WE MAKE AN IMPACT

 

McClure can perform comprehensive development pro forma analysis, assisting your next project with securing additional financing.

WHERE WE MAKE AN IMPACT

 

  • Licensed in 48 States plus D.C.
  • Engineer of Record Architectural Services
  • Full Building Systems Designed with Cold-Formed Steel (CFS)
  • Complex CFS Framing with Radiused Surfaces
  • Reinforced Concrete including Precast and Prestressed
  • Storm Shelters and Hardened Structures
  • Specially Designed CFS Roof and Floor Open Web Trusses
  • Non-Bearing CFS Cladding and Wall Systems
  • Historic Rehab and Repurposing
  • Blast and Progressive Collapse Resistant Structures (D.O.D.)
  • Industrial and Manufacturing Structural Services
  • Value Engineering Solutions including Design Build Experience
  • Special Analysis – Vibration, Instrumentation, Testing, High Seismic, etc.
  • Structural Evaluations, Insurance and Property Assessments
  • Peer Reviews and Expert Witness
  • Modular and Prefabrication Design