Proforma Analysis - Examples
Financial Analysis is the math and science behind the real estate business. While location and ideas are important, the fundamentals relate to money. There are creative aspects to this work, but it is generally not the domain of planners or designers.
Financial Analysis requires specialized training in development proformas, underwriting assumptions (from proprietary databases, market research), and industry metrics to understand projections of revenues and costs over time. It combines topics from accounting, finance, marketing, and operations to determine expected returns and value, and it uses sensitivity testing and statistical methods to assess potential risks and their impact.
The work is generally done in MS Excel, although there are specialized programs such as Argus for more complex modeling across many properties. Narrative explanations are provided in reports and presentations. The work can also incorporate a range of supporting visuals: images of competitors and comparables; mapping of spatial data using GIS software; testing of site plans and building massing using CAD and 3D modeling programs.
While the process and format varies from project to project, some examples of proforma analysis for typical single use development projects are shown below. Mixed-use projects, and those involving multiple buildings, often combine models such as these into a top-level assessment across several parcels. Larger-scale land developments (eg. subdivisions, office parks, entertainment zones, central business districts, new towns, campuses) can be even more complex; these take into account land preparation, infrastructure, public amenities, and a host of other considerations over a timeline that accounts for a longer planning, development, and hold period.
Similar analysis can be undertaken for acquisition/disposition and redevelopment decisions, which is sometimes relevant not just for smaller-scale projects but also for portfolios of properties held by institutions, corporate entities, or asset/investment managers.
Knowledge of this work comes from work experience, as well as formal education (finance, accounting, investment, and development classes), and training from various industry associations.
Clients wishing to learn more about the process may want to look into the following programs and books for more information:
