Development Feasibility Model

This use case explains how to build a development feasibility model for real estate projects in Model Reef.

You will:

• Represent a property development as its own branch or model.

• Model land acquisition, planning and construction costs over time.

• Forecast sales or leasing revenue and associated costs.

• Layer in debt and equity funding and compute project and equity returns.

Model Reef is not a CAD or project management system. It focuses on financial feasibility, funding and return analysis.

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When to use this pattern

Use this pattern when:

• You are assessing a new development or redevelopment project.

• You need to understand cash requirements, drawdowns and returns over the project life.

• You want to test multiple scenarios quickly without rebuilding the model.

• You need investor or lender ready cashflow and return outputs.

You will typically use this as a standalone model per project, and optionally roll selected projects into portfolio views.

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Architecture overview

1

Project structure

• A single branch or model per project, with optional sub branches for stages or uses.

2

Cost side

• Land acquisition costs and timing.

• Soft costs such as planning, design and fees.

• Hard construction costs and contingencies.

• Marketing, sales and leasing costs.

• Ongoing holding costs such as rates, insurance and interest if capitalised.

3

Revenue side

• Sales revenue per lot, apartment or area.

• Leasing revenue if the project is held after completion.

• Settlement timing and any staged payments or pre sales.

4

Funding and returns

• Debt, equity and possibly mezzanine funding.

• Drawdown, interest and repayment profiles.

• Project and equity IRR, NPV and money multiple via the Valuation Engine.

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1

Set up a project branch or model

Create either:

• A dedicated model for the project, or

• A branch such as Project - Development A within a broader model.

If the project is large or needs many scenarios, a separate model is often simpler to manage.

Within the project, you can optionally create sub branches for:

• Stages (Stage 1, Stage 2).

• Uses (Residential, Retail, Office).

2

Model land and acquisition costs

Create Asset and Opex variables for acquisition related items, for example:

• Assets - Land Acquisition.

• Opex - Stamp Duty and Transaction Costs.

• Opex - Legal and Due Diligence Costs.

Set amounts and timing according to the intended transaction schedule. You can fund land acquisition with equity, debt or a mix:

• Equity contributions as Equity type variables.

• Land loans as Liability variables with drawdowns and interest.

This will drive early cash outflows and asset balances.

3

Build construction and soft cost schedules

Define drivers and variables for:

• Hard Construction Cost per square metre, per unit or per stage.

• Soft Costs such as design, consultants, approvals and project management.

• Contingency as a percentage of hard or total cost.

• Holding Costs such as rates and insurance during development.

Create Opex or Asset variables as appropriate, for example:

• Capex - Construction - Stage 1.

• Capex - Construction - Stage 2.

• Opex - Professional Fees.

• Opex - Marketing and Presales.

Spread costs over the construction period using schedules so that:

• P&L and Cashflow reflect the timing of actual cash outflows.

• Assets on the Balance Sheet represent work in progress where relevant.

4

Forecast sales or leasing revenue and timing

For build to sell projects, define variables for:

• Number of Lots or Units.

• Average Selling Price per Unit or price bands.

• Sales Programme over time (presales, construction period sales, post completion sales).

• Settlement Timing and staged payments if applicable.

Create Revenue variables such as:

• Revenue - Unit Sales - Stage 1.

• Revenue - Unit Sales - Stage 2.

For build to hold projects, instead:

• Implement a rental cashflow structure similar to Property Cash Flow (Rental or Lease) once the asset is complete.

Set timing so that:

• Revenue is recognised when sales or leases occur.

• Cash inflows match expected settlement or lease cash timing.

5

Add funding structure and interest

Create Liability variables for:

• Debt - Development Facility.

• Debt - Land Facility if separate.

• Mezzanine Facility if used.

Define:

• Maximum facility limits or gearing rules as drivers.

• Drawdowns linked to a share of project costs or to a schedule.

• Interest rates (base plus margin) and whether interest is capitalised.

• Repayment triggers such as sales, completion or refinance.

You can also represent:

• Equity contributions from sponsors or investors as Equity type variables.

• Preferred distributions or waterfalls in reporting or in a simple Equity variable schedule.

Model Reef will then:

• Calculate interest expense and capitalised interest where appropriate.

• Track loan balances and repayments.

• Show funding flows in the Cashflow Statement and Cash Waterfall.

6

Compute project and equity returns

Use the Valuation Engine to derive return metrics:

• Project level FCFF based on unlevered cashflows.

• Equity level FCFE based on levered cashflows to equity.

From these, Model Reef can produce:

• Project IRR and NPV.

• Equity IRR and NPV.

• Money multiple and payback period.

You can present these via:

• Dashboards for each project.

• Comparison views across projects where the model includes multiple developments.

7

Use scenarios for pricing, cost and timing risk

Clone the project model into scenario models to test sensitivities such as:

• Changes in sales prices or rental levels.

• Construction cost overruns.

• Delays in approvals or construction.

• Changes in funding terms or availability.

• Different exit strategies (sell down, partial hold, complete hold).

In each scenario, adjust:

• Price and sales drivers.

• Cost and schedule assumptions.

• Funding structure and interest rates.

Compare scenarios using:

• Project and equity IRR and NPV.

• Peak funding and drawdown requirements.

• Cashflow timing and risk.

• Portfolio impact where projects feed into a larger group model.

8

Check your work

• Cost and revenue assumptions reflect independent data, recent projects or feasibility studies.

• Timing of construction, sales and funding follows a realistic programme.

• Debt limits and covenants align with lender expectations.

• Return metrics are comparable to other feasibility work for the same project.

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Troubleshooting

Model shows unrealistic returns or losses

Double check cost, price and timing inputs against external references and ensure that you are not missing major categories such as contingency or marketing.

Peak funding appears much higher than expected

Review the timing of land acquisition, construction and sales, and ensure that funding draw rules match how facilities are expected to operate.

Difficult to maintain multiple projects in one model

Use one model per project during feasibility and create a separate consolidation model for portfolio level reporting.

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