Real Estate - Land Development Model
Originally published: 08/05/2020 07:55
Last version published: 16/08/2022 08:29
Publication number: ELQ-62496-4
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Real Estate - Land Development Model

Real-estate Financial Model for quickly calculating the potential returns and/or estimating the land development project

This model is a fully functional, institutional quality, and dynamic real estate Financial Model for quickly calculating the potential returns and/or estimating the land development project. It’s a robust model (with only three tabs) yet, very user-friendly that will provide the user with a very detailed Excel spreadsheet.

The model assumes one phase of horizontal development where the land is purchased at the entitlement month, and then construction begins. Before the purchase, the model takes a period spent in due diligence with some expenses incurred (evenly split during the diligence period). At the end of the DD period, a land deposit is made.

The sales of the lots unfold in two phases: the pre-sales, where the lots are sold at a discount over the average lot sale price, and the regular sales period, where the discount is no longer applicable. The template assumes a deposit payment in the month of sale, and after the closing period, the remaining proceeds are received.

The construction assumptions (hard and soft costs) are also evenly distributed during construction.

Finally, the user needs to enter financing, rate, term, and loan-to-cost assumptions.
The template analyzes up to 120 months of unlevered and levered monthly cash flows with all assumptions in place.

Model Options:

• The summary tab is optimized for a dashboard-style overview. All the inputs are shown in bold blue; everything else is a calculation or label. All the required assumptions are inputted in the summary sheet.

• Dynamic Monthly & Annual Cash Flow: To calculate the key investments, metrics of the project, and the overall value of the deal, the cash flows are calculated on a monthly basis;
• Dynamic Funding: The model works backward to get the required amount and timing for Equity/loan funding;

• Equity first: The template assumes that the constructions and operating expenses are funded first by equity, and then the remaining costs of the project are funded via loan draws;
• IRR Sensitivity analysis based on an average sale price, land acquisition cost, and construction cost variation;

• 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.

This Best Practice includes
Excel template

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Further information

Evaluate the feasibility of a land development project (purchase of land, land development and sell of lots) from an investment/investors point of view taking into account various parameters such as operational, leverage capital expenditures, equity structure, average sell price etc

Does not work well for non-real estate businesses.

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