Property Developer Feasibility Modelling
Course Length: 2-days
Pre-requisite: none
Note: There is some Visual Basic for Applications covered in this course.
Property development has a very different risk and return characteristic to investment property and requires different types of model.
Residual models (profit & site) are demonstrated first to illustrate the main components of any scheme and the traditional methods of evaluation such as profit on cost ratio, rental yield and interest cover. Development cash flows are then constructed in detail looking in particular at phased income as well as fixed, variable and incidental construction costs and their impact on the net cash flow. Additional performance metrics are calculated including geared IRR and return on equity.
Developed financing can be trickier than straightforward senior debt investment financing due to finance being required in stages rather than all up front. The brought forward carried forward method, demonstrated on the course, is the easiest way to deal with programmed debt drawdown functions and rolled-up interest.
The assessment of project specific risk is arguably much more important in development schemes. Sensitivity analysis, scenario analysis and Monte Carlo analysis models are covered in the final section of the course.
Who will benefit from this course:
• Developers
• Analysts
• Fund managers
• Lenders
Day One (of 2)
Learn how to build a detailed property development project cash flow
Part A (morning)
- Residual Cash Flow Model, Profits & Site Method
- Interest Payable Calculation and S-curve estimates
- Return Metrics: Developer’s Profit, Profit on Cost Ratio, Rental Yield and Interest Cover
- Revision of cash flow modelling principles: The rent function, Opex and Capex, Net Cash Flow (NCF), Net Present Value (NPV) and Internal Rate of Return (IRR)
Part B (afternoon)
- Development Cash Flows v. Investment Cash Flows
- Purchase price and acquisition costs
- Phased Sales, marketing and disposal costs
- Fixed Construction costs, variable and Incidental costs, construction fees
- Professional Fees
- Introduction to the Project Cash Flow
Day Two (of 2)
Learn how to add financing to and perform risk analysis on commercial development projects
Part C (morning)
- Income and expenditure projection functions
- Logic functions, logic tables and array formulae
- Debt finance, LTV, Interest cover and front fees
- Debt scheduling: brought forward and carried forward method
- Interest charged v Interest paid, rolled up interest and debt drawdown functions
- Geared IRR and equity returns
Part D (afternoon)
- Sensitivity Analysis & Data Tables
- Multiple IRRs, competing projects, scoping and linear programming, maximum performance
- Scenario modelling
- Random variables, input distributions and simulation modelling
- Presentation, protecting and saving work
