Real estate development pro formas: Do the numbers work?

What is a pro forma and what goes into one?

Before you move forward with a development project, you need to know whether the numbers work. A project pro forma helps you answer that question.

A real estate development pro forma is a financial model that estimates your project’s costs, revenues and financial performance. Developed during the predevelopment process, it brings the financial pieces of your project together so you can evaluate feasibility, make informed decisions and provide prospective lenders and other financing sources with information they will need. DBS Group can add value early by helping translate project goals into realistic scope, budget, phasing and schedule assumptions that make the pro forma more defensible.

Just as importantly, developing a pro forma early can identify financial challenges while you still have opportunities to address them.

 What goes into a development pro forma?

The specific inputs will vary by project and property type, but a comprehensive pro forma typically considers the following. This is also where input from a trusted design-build partner can be especially helpful, because early design concepts, construction pricing, phasing plans and schedule assumptions directly affect the numbers.

• Land and acquisition costs: Purchase price, closing costs, due diligence and other costs associated with acquiring the property
• Hard construction costs: Labor, materials, site work, utilities and other costs directly related to construction. DBS Group can help develop early cost opinions, identify cost drivers and refine estimates as design decisions are made.
• Soft costs: Architecture, engineering, permits, legal fees, financing fees, insurance and other professional or administrative expenses. Because design-build combines design and construction insight, the team can help align soft-cost assumptions with the project scope and approval path.
• Financing: Loan amounts, interest rates, fees, equity requirements and other potential funding sources, including grants, tax incentives or public financing when applicable.
• Project schedule: The timing of design, approvals, construction and occupancy, all of which can affect costs, financing and revenue timing. We can help create a realistic schedule and evaluate how phasing or accelerated delivery may affect carrying costs and cash flow.
• Revenue: Rent, sales, fees or other income the completed project is expected to generate.
• Operating expenses: Ongoing expenses such as utilities, maintenance, property management, insurance and taxes.
• Vacancy and occupancy assumptions: Estimates of how quickly the property will reach stabilized occupancy and how much vacancy to anticipate.
• Cash flow: Projected income and expenses over time.
• Financial performance: Measures used to evaluate whether the project can meet your financial objectives and financing requirements.

Together, these inputs give you a more complete picture of your project’s financial viability.

Why develop a pro forma during predevelopment?

A pro forma isn’t simply something you prepare to obtain financing. It can help you make better decisions while your project is still taking shape.

For example, you can use it to evaluate how changes in construction costs, financing, project scope, schedule, rents or other assumptions could affect financial performance. If the numbers don’t work, you can explore alternatives before committing significant resources to design and construction. DBS Group can support that process by testing scope options, value-engineering concepts, construction sequencing, and schedule scenarios so the pro forma reflects practical choices rather than isolated spreadsheet assumptions.

Your pro forma also becomes an important part of conversations with lenders and other financing sources, which will analyze your assumptions and projected performance when evaluating your project. 

You don’t have to develop it alone

An effective pro forma depends on reliable information. That means financial modeling should be closely connected to the other work taking place during predevelopment.

DBS Group can help you assemble the information needed for pro forma development, including design, budget and schedule information developed during earlier predevelopment steps. As a design-build firm, we can help connect the financial model to real project inputs by developing preliminary budgets, identifying major cost drivers, evaluating scope alternatives, reviewing schedule impacts and helping refine assumptions as more information becomes available. We can also introduce you to financial modeling and analysis resources and help solicit proposals when needed.

When it’s time to consider financing, we can connect you with lenders and other financing contacts, assist with proposal solicitation and evaluation, and help identify potential funding sources such as grants, tax increment financing and other financing options.

For us, the goal is simple. It’s to give you the financial information you need to determine whether your project makes sense — and what may need to change before you move forward. By bringing design and construction expertise into the pro forma process early, you gain a clearer view of feasibility, risk and opportunity. Because the earlier you understand the numbers, the more options you have to create a project that works.