What should you include in your pro-forma when doing a real estate development? Renat Yusufov, Managing Partner at Bullpen shares his detailed pro-forma, how should you think about it, and why. He also shares his top asset classes and markets to be in.

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We have a non pro-forma here for stabilization. This is where it's dealer's choice, being an office product, being multi tenanted, chances are you're going to go through Argus software, you plug in your assumptions, you plug in your rent roll or your expected rent roll, and it basically does the pro-forma for you. Some people have an aversion to it, because it doesn't allow for more flexibility, however, it does allow for more detail, it's the double edged sword. My personal opinion, the more complex your office product is, meaning the more tenants you have, the more nuance you have about leasing, and staggering timelines, the more likely you prefer to go with Argus. It's a little more painful in terms of editing on the fly. But the flip side of it is that it's definitely more accurate than anything you would probably be able to build an Excel. This is a summary of where you expect to land. And a lot of this is actually pulling from Argus, Argus lets you pull in Excel tabs basically as outputs so you can integrate it back into your Excel on both the assumptions, the leasing summary, and the base rent.

And you can change all of these numbers based on various specific locations of each property?

Exactly. And that goes back to your building, and the south side of a certain city and state, you'll talk to the brokers who have experience there, and they'll tell you what the rents will be, they'll tell you how long it'll be on the market before you'll find a tenant, what the terms are, and the big terms being free rent, TILC, so that's tenant improvement leasing commissions, and the time it'll take to find a tenant, as well as the credit. This is really a summary. You'll have different audiences for this model, it's better to have it here than for them to have to run around the tab looking for the specific month, when you stabilize, and what the rent looks like then. I show it as a total dollars per net square foot, and dollars per gross square foot, because this is a construction project. You're building grows, regardless. But you want to show how that rent looks both net and gross.

The goal here is, if I want to exit as an investor or as a lender, what is my risk of waiting until before stabilization? At what point during lease up do I hit the yield that I need to be? Or at what point am I operationally profitable? And the last part, the exit, the biggest toggle here is obviously cap rate, you're stabilizing a property and you're selling it for a certain yield. I put at least 6%. In a post Covid environment that we're living in, office is an interesting subject. A lot of opportunity, and a lot of hurt in some cases is happening in the office space. We're seeing a cultural revolution, frankly, on terms of office.

The project I picked here is an open layout, high ceiling, shared amenities. I think this is where office is going, and we are just showing what kind of concept you'd probably be wanting to build today. I was reading the news today and I think 19% of New York City offices are on the market. It's a double edged sword.

Renat Yusufov

Bullpen

[email protected]

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