Industrial Real Estate Development Model
Originally published: 11/08/2022 10:44
Last version published: 20/02/2023 10:02
Publication number: ELQ-58539-4
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Industrial Real Estate Development Model

An Excel-based analysis tool for the ground-up development, operation, and ultimate disposition of a single- or multi-tenant Industrial/retail property.

An Excel-based analysis tool for the ground-up development, operation, and ultimate disposition of a single- or multi-tenant Industrial/retail property with or without streams. 

The model is monthly in nature, and it is a 100% unlocked Excel file with fully transparent formulas that can be further tailored to suit the particulars of your transactions.

This model fits the definition of a professional tool. It is specifically built to analyze merchant-build, ground-up industrial development opportunities. 

It includes an expandable budgeting and development cash flow module, robust rent roll and operating cash flow module, and the ability to model complex partnership waterfall structure. 

This best practice is meant to be used when the user intends to evaluate development, lease up, and sell an industrial property. 

Model Options:

- Dynamic Monthly & Annual Cash Flow: to calculate the key investments metrics needed to determine the feasibility of the project and the overall value of a potential selling, the cashflow is calculated on a monthly basis;

- Because it is a developing project model, the lease-up forecast takes into account the fact that during the construction phase, there is no or limited revenue, and the construction loan interests are capitalized;

- Dynamic construction budget: the construction expenses are modeled following an s-curve (normal distribution), meaning that construction expenses can be projected in a way that you have few expenses in the beginning, and then they quickly ramp up to your full project costs (depending on the standard deviation introduced);

- In the rent roll sheet, the user can set up to 10 tenants, including options like Tennant improvement and lease commissions cost for both renewal and new contracts, Lease Type, Free Rent, Renewal Probability, and so on. The model can cope with up to 4 generations of renovations;

- Dynamic financing: this model works backward to get the required amount and timing for Equity/loan funding, taking into account the capitalized interestest and any operating shortfalls that are funded with both equity and debt;

- The model allows the user to set up four financing options: a construction loan, a mezzanine to Gap any additional funding during the construction period, a permanent debt, and the possibility of refinancing the permanent debt.

- For the permanent and refinance debt, the user can also set those loans with the possibility to ask for additional funds to fund any Tennant Improvements and lease commissions;

- Because the interest expenses are partially funded with debt, this can cause circularities issues in the model. So the template also includes a circularity breaker (toggle between on and off) to avoid it, this will "break" the circularity, and the errors will be flushed out. 

- Equity Waterfall Model: the template provides a 3-tier Equity waterfall model, so the user can determine how much capital the limited partner and General partner will get and their respective rates of return. The waterfall also allows setting the investor cash flow monthly, Quarterly, or annual.

- The user only needs to input information into the cells formatted in the dark blue font in the Assumptions and Budget sheets. If the contents of a cell are colored black, it means that it is a formula.
- All inputs in the model are formatted in blue type. Any input that has a suffix or Prefix such as "/month", "Year", or "SFT", and so after/before the numeric value is custom formatted to display that text suffix/prefix. You only need to enter NUMBER VALUES in those cells. Do not re-type the text suffix -- it will corrupt the calculations or crash the model altogether.

- The template is provided with information from a hypothetical property for demonstration purposes that must be erased for a real property valuation;

-The investment summary sheet provides an overview of the property based on several key metrics and a printable "pitchable" report;

-In the Assumptions sheet, the user can define the majority of the drivers, and along with the budget sheets are the only sheets the users need to input information;
The maximum horizon for this model is ten (10) years; 

Macro Iterative Pasting

While it is generally advisable to avoid using VBA in project finance models, in some cases, due to specific financial model circularities, VBA may be necessary to implement copy-paste functionality and "break" these circularities. A circularity occurs when the value of a cell is dependent on itself, leading to a situation where Excel cannot correctly calculate the value. In this case, the VBA Macro provides a solution to circular references arising from the interest calculations, loan fees, expense reimbursement, and other items whose values are dependent on their value itself (e.i, interest pays interest on itself or the Net Operating Income that is dependent Revenue for expense reimbursement and the same time depends in the expenses accrued) by implementing copy-paste functionality to break the loop and allow the model to calculate correctly and for a more stable model.

This Best Practice includes
1 Excel Template

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Further information

An Excel-based analysis tool for the ground-up development, operation, and ultimate disposition of a single- or multi-tenant industrial property

It does not work well for non-real estate businesses.

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