Deal type
Ground-up development
A development deal is three models that have to agree: what it costs to build and when the money goes out, how it is financed while nothing earns, and what the building is worth once it is leased. Here they are one model, month by month, from the land closing to the sale.
The budget, and when it is spent
Every line has a method (a lump sum, or a quantity in square feet, yards, linear feet, acres, each or months at a unit price), a start, a duration and a curve. Hard costs ramp up and tail off on an S-curve; soft costs go out evenly; a permit fee lands all at once. The cash flow draws each line month by month on its own curve.
- Change the quantity or the unit price and the amount follows, or type the amount and the unit price is solved back.
- A contractor’s cost estimate can be imported from its PDF, checked against its own subtotals before anything is written.
- Contingency as a percentage of hard and soft cost, spread over the same months the budget is spent rather than parked at the end.
- The budget charted by kind of line, with contingency named, and cumulative spend over the build.
A construction loan that draws as you build
Sized on cost and drawn pro rata against each month’s spend, so the loan balance follows the building rather than arriving on day one.
- Construction interest capitalized into the loan through an interest reserve, or paid from equity as it accrues. One switch, and the peak equity changes with it.
- A mid-hold refinance sized on forward NOI can take the construction loan out once the building is leased.
- Coverage and debt yield reported against your thresholds, beside the loan.
Leases that start when the building does
Pre-leased tenants start on their delivery dates; a speculative suite starts when you expect it to sign. Until then each one is vacant space, and the model says what that costs, in base rent and in the recoveries it would have paid.
- First-generation TI and commissions charged when each lease starts, with its free rent, because on a new building every lease is a new lease.
- The exit capitalizes the twelve months after the sale, so a building sold during lease-up is priced on the NOI it is about to earn rather than the year it spent empty.
- Then the same rollover, recoveries and escalations as any income property.
Try it · the ground-up deal, running in this page
Honest
What it does not do
A page that only lists strengths is a page you have to check somewhere else.
- Lease-up is suite by suite. A speculative building is modeled as suites with the dates you expect them to sign, not as an absorption rate over a floor plate.
- One senior loan. A refinance can take the construction loan out, but there is no mezzanine or preferred equity in the capital stack.
- No retainage or schedule of values. Costs are drawn by line and curve, not by a contractor’s pay applications.
- No permitting or entitlement risk. Construction starts when you say it starts.