How to Run the Numbers Before You Commit to a Development Project
ASK:
I’ve got a piece of land and a concept. How do I know if the numbers make sense before I dive in?
ANSWER:
In development, “good idea” doesn’t always mean “good deal.” Before you commit to a site, you need to know if the numbers work today, and all the way through entitlements, construction, and stabilization.
At I&D Consulting, we run financial analysis alongside feasibility and continue to underwrite the deal throughout the process. That’s because timelines, entitlement risk, and permitting costs can swing your proforma as much as the construction budget.
Our approach starts with three layers:
- Acquisition Costs & Carrying Costs
- Land price, closing costs, and due diligence expenses
- Interest, taxes, insurance, and holding costs during entitlements
- Soft & Hard Costs
- Soft: design, engineering, permitting fees, environmental studies
- Hard: construction, utilities, infrastructure upgrades
- Revenue & Exit Scenarios
- Lease rates, sales pricing, or operating income projections
- Sensitivity analysis on timing, market changes, and delays
This is about pressure-testing the deal against reality:
- What if the city adds a condition that costs $250,000?
- What if your primary tenant pushes their opening back six months?
- What if utility connection fees are double the estimate?
We’ve seen deals fall apart because no one modeled those scenarios early, and we’ve helped save others by spotting them before money went hard.
KEY TAKEAWAYS:
- Financial modeling should start before you control the site
- Factor entitlement timelines and utility costs into your pro forma, not just construction
- Test multiple scenarios so you know your real risk
People Also Ask
1) What’s the difference between a proforma and a feasibility study?
A proforma focuses on the financial viability of revenues, costs, and returns. A feasibility study includes financials but also addresses zoning, entitlements, utilities, and site constraints.
2) How do you calculate a developer’s return?
We typically look at IRR (Internal Rate of Return), equity multiple, and profit margin modeled across multiple scenarios.
3) Can I skip running the numbers if I have a strong tenant?
No. Even with a solid tenant, unexpected entitlement costs, utility fees, or delays can wipe out your margin. Strong tenants help, but they don’t eliminate development risk.
