As a member of the Cahdco team, I am drawn to the office every morning by the prospect of a fresh coffee and the opportunity to contribute to something that creates lasting value for our community. Many of the projects we undertake directly result in the creation of new affordable homes. In truth, at the end of the day that’s why many of my colleagues and I are here. Fortunately for me, there is no shortage in available opportunities or ideas for creating new housing. Despite many competing financial priorities, our clients are always looking to push their boundaries to achieve their mission and I am continuously impressed by their resourcefulness and willingness to overcome challenges. Unfortunately, we, too, are constrained by a limited set of resources with which to pursue these ideas. As an organization Cahdco must constantly review and balance our risks and opportunities to choose the best projects we can. From a portfolio perspective this means drawing a clear picture of the scope and viability of each project and continuing to update this picture as our work progresses. From pre-feasibility through construction, the tool our team uses most often for determining a project’s viability is our own Pro Forma model.
In their simplest form real estate Pro Formas are calculators. They model a portion of the known information on a project as an input along with a series of assumptions and then output a key metric or metrics that indicate whether that given project is likely to be feasible. These calculators can range in complexity from a paper template to a custom built financial application. For example, a very simple Pro Forma may provide an order of magnitude estimate of the total cost to construct a project by capturing the project’s gross floor area (GFA) and multiplying it with an assumed set of construction costs. Alternatively, in their most complex forms these tools can be automated to capture construction conditions (e.g. built form, zoning, use, and land cost) and combine them with market assumptions (e.g. construction cost, inflation, and lending rate) to predict information such as the 30-year cash flow, the project’s Debt Coverage Ratio (DCR), or the project’s Internal Rate of Return (IRR).
At Cahdco, starting with Dennis Carr and continuing through each of our past and present staff, we have developed an effective Pro Forma in Excel that we can adapt to each project’s unique needs. Our Pro Forma model incorporates the available project information along with educated assumptions to determine whether that project is feasible under a series of present or future conditions. Through our continuous refinement this Pro Forma template has become rather complex. That complexity allows us to more accurately determine the feasibility of our projects; however, it also makes our Pro Forma inaccessible to anyone who doesn’t use them on a regular basis. I am going to tell you why that matters and what a charity from Toronto has been doing to address this issue.
Having a consultant such as Cahdco create a Pro Forma model to determine the viability of your project is a prudent measure to ensure that your project is a success. However, in an industry that relies on partnerships and pooled resources to deliver new homes there is a benefit to having an option to determine whether your concept is feasible before you invest in the services of a of professional team such as Cahdco. Further, in our present environment of renewed Federal involvement in housing, the capacity to show our peers, potential partners, or policy makers where their money could make the most impact within a project is a key to enabling them to participate in a discourse that can have an impact to the whole sector. An interactive and intuitive Pro Forma could address both of these needs for a way to quickly explore further collaboration and feasibility through informed real-time feedback.