Financial Pro Forma Analysis
A Financial Pro Forma Analysis is a special combination of spreadsheets, comparable listings-sales, understanding of valuations of land, homes and proposed commercial, recreational, industrial and residential development and improvements that allow investors to understand whether or not they should invest their money in the proposed development.
A Financial Pro Forma Analysis is a document typically requested by a developer
The developer needs this document to convince investors to invest their funds in the developer’s project. The Architect recently completed a 41-page financial pro forma analysis for a $15 million community in the Blue Ridge Mountains of western North Carolina.
A developer saw an opportunity to purchase a distressed existing neighborhood for a bargain price and knew that he had a tiger by the tail, but needed some expert architectural and financial and real estate expertise all rolled into one. He knew he needed a financial pro forma analysis created by an architect that not only knew how to design neighborhoods, but also had an excellent grasp of what the vacant land was worth, what cottages and estate homes might cost to design and build and what they could fetch for an asking price and still turn a profit for the developer and his investors. That is when the developer called in Rand Soellner Architect to assist his operation.
Architect created a 41-page analysis
The Architect created a pro forma that greatly impressed the financing brokers and investors. 17 pages of the report consisted of comparable listings-closed sales taken directly off the local MLS (Multiple Listing Service) indicating exactly targeted and bracketed asking list price and actual closed sales prices for comparable local offerings, some in the same development. About 10 pages of Soellner’s report consisted of Excel electronic spreadsheets, both 8-1/2″ x 11″ and 11″ X 17″, documenting the economic and mathematical relationships of the various purchase prices, taxes, operating/maintenance costs, real estate and architectural and engineering fees, and recommended sales prices and projected profits for 7 primary facets of the community under consideration.
The bottom line is something Soellner likes to make the Top Line. Soellner always puts the main conclusions of his analyses on the first page, at the top line. Why hide that at the bottom? Might as well make it easy for possible investors to understand what the ROI (Return On Investment) is right up front. Soellner created several pages of spreadsheets focusing on the various areas of profit generation within the community, then also created a Master Executive Summary Spreadsheet, pulling the bottom lines of all of those together on one larger spreadsheet, so that the developer and the prospective investors could easily understand where all of the numbers came from.
Easy to understand numbers and conclusions drawn from reality. Soellner’s analyses use real numbers from today’s marketplace. Even in the current challenging market, Rand’s analysis indicated a remarkable 26.59% Return On Investment. The point was made in the pro forma that if the project performed that well under a low-activity housing market, it could only do better as the economy improved, which made the proposal all the more attractive to the developer and his prospective investors.
Soellner also includes what makes the project unique. In this particular case, the beautiful mountain views, cool temperate climate, exceptional value of the under-priced offering and economical building era.
A variety of timelines were developed and reviewed: 1 year, 2, 3 and 4 year build-outs and sales, to illustrate that even under various schedules, the project still made economic sense and still made outstanding profits for investors.
The relationship for the JV (Joint-Venture) partner was developed by Soellner, creating roles for each party that made sense according to their desires and abilities to handle the various responsibilities of the project. Soellner also clearly spelled out the breakdown of profits to the partners so that there would be no misunderstandings later. Of course, legal counsel prepared the actual contracts. Soellner put together the “front end” upon which those legal documents were based, due to his experience with housing and housing developments.
Soellner also put together the Sale Plan for the development, detailing how the real estate brokers would market the various lots, homes, cottages and rental space. Soellner’s wife is a licensed real estate broker and her counsel is very valuable in this regard.
For pro formas that help you obtain the funding you need: