Guide · Build
A ground-up development proforma a lender will read
Development risk is the gap between what it costs to build and what the finished property is worth. Lenders and equity look at that gap as yield on cost over the market cap rate. The app builds the budget, the construction loan, the lease-up and the permanent takeout, and tests each.
Yield on cost over exit cap
Stabilised net operating income over total project cost, against the cap rate the finished property would sell at. The default bar is 1.50 points of spread; below about one point the project is not paying for its risk.
Loan to cost and contingency
Construction lenders rarely go above 80% of cost and want at least 5% hard-cost contingency. Construction interest is carried on the average balance drawn (55% by default) at 9.5%.
A cost check against the market
The hard-cost budget is checked against public cost-per-square-foot ranges, scaled by the U.S. Army Corps of Engineers area cost factor for the state or city.
The takeout
Once it is built, the property has to support a permanent loan at 1.25x coverage, and the equity multiple (1.80x default) shows what the sponsor’s money earned.
The tests
| Test | Default bar | Kind |
|---|---|---|
| Yield on cost over exit cap | 1.50 pts minimum | Hard gate |
| Loan to cost | 80% or below | Hard gate |
| Hard-cost contingency | 5% minimum | Hard gate |
| Profit over total cost | above zero | Hard gate |
| Coverage on permanent debt | 1.25 minimum | Hard gate |
| Margin on cost | 15% minimum | Target |
| Equity multiple | 1.80x minimum | Target |
Default targets for an experienced sponsor. Every bar can be changed in Settings.