Detailed Development Feasibility Software
With Cash Flow Projections using S-Curve Distributions, custom cost codes & multiple financing options
For Real Estate Developers who love details &
precision over their project cash flow projections
Development Feasibility Software
With Cash flow projections with S-Curve distributions & multiple financing options
Detailed Development Feasibility Software With Cash Flows
Using S-Curve Distributions, Custom Cost Codes & Multiple Financing Options
tried, Tested and Successfully Implemented And Applied In
🇦🇺 Australia, 🇳🇿 New Zealand, 🇺🇸 USA, 🇨🇦 Canada, 🇬🇧 UK, 🇿🇦 South Africa,
🇯🇲 Jamaica, 🇫🇯 Fiji, 🇲🇾 Malaysia, 🇮🇩 Indonesia, 🇸🇬 Singapore,
🇭🇺 Hungary, 🇹🇷 Turkey & So On…
Lead Developer Breaks Excel
This is one concept that takes a while to understand, but it is super important to get clarity on. And if you try and code it, it will break your excel spreadsheet.
Total development Costs (TDC)
The total costs for any development project, include finance and interest costs, especially for construction. In fact, the banks have to allow interest costs as part of total development costs.
Interest is calculated on maximum debt
The total interest for the project is calculated on the maximum loan amount or maximum debt that the bank has approved for your project.
Maximum Debt is calculated based on the Lenders loan to cost ratio
The maximum amount of money that you can borrow is determined by the loan to cost ratio i.e. a percentage of the Total Development Costs of your project.
Has your brain exploded yet?
I know mine did when I first tried to get my head around it. This is an infinite loop & requires some serious coding that can iterate interest calculations to arrive at the most probable value.
To simplify… This is how it works…
- TDC Includes Interest On Construction
- Interest Is Calculated From Maximum Available Debt
- Maximum Available Debt Is Calculated As A % Of TDC
Did you get that?
Doesn't matter - because you don't have to worry about a thing…
✓ It's been taken care of in all Development Feasibility Softwares of Lead Developer Feasibility Suite.
You just go about with your business & the code works in the background. You have no idea how many times we broke the sheet, trying to code this loop.
But I made sure that all 3 development softwares:
- One Minute Feaso
- Smart Feasibility Calculator
- Lead Developer
…were coded to get this right. So all three of them go into a loop 50 times before a probable (most likely) interest cost is selected for your project.
This is where Lead Developer Feasibility Suite excels against anything that can be built at home using spreadsheets & templates. In fact, I have never seen this function in any other development feasibility software program.
Detailed Development Feasibility Software With Cash Flow Projections And Multiple
I've Invested Over 8 Years Of My Own Time And Money finding, stacking and executing property development projects. Checking them against my project feasibilities and tracking them. I have literally gone through thousands of iterations to finally have them packaged in a property development feasibility software / application.
These Tools Were The Missing Piece Of The Puzzle I Needed To Make Confident Development Decisions When I Started Out As A Property Developer.
Lead Developer Is A Detailed Financial Feasibility Software With The Ability To Plan And Distribute Cash Flows Using S-Curve, Create Custom Cost Heads And Cost Codes With Multiple Financing Options.
The simple development feasibility software
Ever found detailed feasibilities daunting? Specially the ones with cashflows, financing options… the ones that scare people off? Well, I can tell you that Lead Developer is designed to be your best friend. It has all the features of an advanced feasibility software, without the "scariness" that comes with them.
Lead Developer allows you to Customise Cost Codes,
cost centres, tax codes, tax rates & currency symbols.
Lead Developer goes one step further. It allows you to customise every cost centre so you are familiar with the nomenclature. You can customise, Tax Codes like GST and VAT - allocate a percentage to them as well as customise the currency symbol and
you only have to customise your Lead Developer Master (LD_MasterData) once…
Once you have your master data sheet set, every time you create new feasibility, it will automatically pick your custom cost codes, cost centres and tax rates if applicable.
And the best part… you can add new cost centres as and when required and they will update in your current feasibility in real-time.
You can also share the master sheet with others so your entire organisation uses the same cost centres & master data every time they conduct a development feasibility.
Exhaustive List Of Development Costs
Construction Cost Calculations
Detailed Construction Costs:
1) Average Cost / Built Area, 2) Average Cost Per Unit,
3) Detailed Cost Calculation By Individual Built Area
Sale Value Calculations & Other Income
Have you heard of S-Curve Distributions?
I don't want to bore you with technobabble, because that's not my intention.
But In Case You Are A Geek (like me)…
For Everyone Else, here is a simple explanation of an S-Curve Distribution…
When we forecast development and construction costs to determine the monthly outgoing cash flow of our project, we don't know for sure exactly how much costs will be incurred in month 2, 3, 4, 5 of the project & so on.
So to simplify this process we project our development costs in future using an S-Curve, which helps us distribute our costs over a period of time.
We need this because…
- It helps us determine monthly outgoings
- It helps us to find out the amount of money we will need as developers' equity
- And it helps us to calculate our interest costs based on the drawdown amount. Interest can only be calculated on the amount your project has used or drawn down. And S-Curve is the best mathematical way of distributing cash outflows over a period of time.
In real estate development, cash flow is king. And managing it an important skill every developer must learn.
Lead Developer allows you to distribute project cash flow using an S-Curve
And it Allows you to select the steepness of the S-Curve
Now, What Does That Mean?
Well, not all cash distributions are equal, some costs are incurred at a more rapid rate than others and Lead Developer gives you the power to select the intensity or the rate at which costs are distributed over a period of time.
The image below distributes or expends $1m using an S-Curve over a 12 month period, but at different rates i.e. according to the steepness of the S-Curve.
In Lead Developer you can select from 5 different options:
- Moderately Flat
- Moderately Steep
To forecast your estimates more accurately based on the type of costs you are distributing.
Forecast Development Costs
100% Fully Customisable Development Cost Codes Can Be Forecasted Over Your Project Timeline Using
S-Curve Distributions With The Ability To Select The Steepness Of Your Bell Curve To Distribute Not Only Construction Costs But Any Or All Development Costs.
Detailed Summary Sheet
Including Cash Flows
Whether You Are After A One Page Summary Or A Detailed Summary That Includes Summarised Cash Flow Distributions - Lead Developer Has It All
Multiple Financing & Refinancing Options
Calculate Finance And Interest Costs For 5 Different Scenarios. Buy A Site And Hold, Then Refinance & Then Convert It Into Commercial Construction Loan. In Addition, Calculate Interest On Mezzanine Finance As Well As Your Own Developers Equity.
Extensive Decision Metrics From Project Profit, Development Margin On Cost & Revenue, Cash On Cash Return, Developers Equity Contributions, Residual Value Of Land, Net Present Value, Internal Rate Of Return As Well As An Income Statement
Lessons Learnt - from A Project That Almost Took Me Under...
A few years ago I was doing a 12 Townhouse Project in Melbourne. It was a $9m project, pretty significant for me at the time. From day 1, I was closely watching and tracking the project like a hawk.
Constantly keeping an eye on the bottom line. I had pre-sold 6 out of 12 Townhouses to meet my lenders' requirements. I had already negotiated the loan to cost with a lender and I was just waiting for a commercial valuation to get the construction loan across the line.
I had done a few projects before, however, never with a top bank. At the time I only had experience in dealing with hard (shark) money lenders. They are pretty strict with terms and higher interest costs, but they usually allow you to borrow more.
But this time I was dealing with a major bank and I learned two costly lessons, which nearly cost me the project.
Lesson # 1
So here's what happened…
My first setback was when I got back the valuation. As you know major lenders will only consider the value of your project as per the commercial valuation or appraisal. And for a construction loan, the property developer always needs a commercial valuation.
It is also known as PRSV - Project Related Site Value
It similar to the residual value of land, but countries that have taxes like GST & VAT have a slightly different way of calculating residual value.
The valuation wasn't where I wanted so I disputed it with the valuer and the bank…
For now let's get to the blunders I made, although they were naive mistakes, but as you know naive mistakes in developments can cost you the project.
The first thing I learned in this transaction was that a bank will always come up with their own total development cost. It might have cost you $X.00, but when a lender calculates the total cost, it may or may not include certain soft costs.
Let me explain, let's say you allowed 70% of Total Development Cost (TDC) for your construction loan.
What does that mean?
It means, that if your total project costs are 100, the bank will fund 70 and the developer will have to come up with 30 to complete the project.
However, if the bank decides that your TDC (Total Development / Project Costs) is not 100, it is 80 - then that means, it will only fund 56 & you now have to come up with 44 instead of 30. Suddenly you are out of pocket another 14 - which you never accounted for.
And this is exactly what happened to me in this project. I had done numerous feasibilities and looked at funding tables with shark lenders as well, but it had never impacted me before. Because shark lenders always allowed me to borrow more. Mainly because they can borrow money based on total sales of your project, instead of total project costs.
Well, let's just say I didn't sink. I managed to gather the shortfall, some in cash and some in credit as I was controlling the construction side as well.
But the lesson I learned in this transaction was that I needed to have a funding table in my feasibility which was flexible enough for me to allocate costs to the developer as percentage & then come up with what I like to call, Bank's TDC for your project.
Both, Smart Feasibility Calculator (SFC) & Lead Developer - give you 100% flexibility to foresee what could be your BANK's TDC.
I have never seen a funding table as part of a development feasibility in any software before and that's why I wanted to make sure that Lead Developer Feasibility Software has everything that a developer and investors faces while doing projects.
Funding Table In Lead Developer
Construction Interest Reserve
Here's the Double Whammy…
When the bank used their own Total Development Cost to calculate the maximum debt for my project… I figured a lower debt i.e. more money from my pocket was my only problem…
But little did I know, there was one more thing that was about to hit me like wrecking ball️…
The bank calculated their approximate construction interest which was around $160,000 and then deducted this amount from the total debt that was available for construction…
Did you understand what just happened here? (apart from me being hit by the wrecking ball - I got caught unawares. Let me explain…
Lesson # 2
Continued From Lesson # 1
Let's say the actual Total Development Costs for my project were a $100 & I assumed that I will be able to borrow 70% of those costs - i.e. bank will fund $70 & I have to inject $30 as developer's equity…
But then Bank calculated their own TDC and used $80 as total costs - which meant that bank was funding $56 & I was funding $44
Here's the double whammy…
Bank then decides that $16 is the approximate interest on the $56 that they will lend me… so they will deduct $16 from $56 & hold on it to as a construction interest reserve…
Which means that the total debt available for construction is now $56 - $16=$40 & $60 needs to come from my pocket… i.e. developer's equity…
This is what all top banks do… although the loan is approved to you - but they will hang on to the interest reserve and not release it to you as debt…
One way to look at this is, since I am using less debt, I'll be paying less interest…
However, on the other hand..
It means that you as a developer can be out of pocket mid way… because suddenly you have to come up with cash or equity that you didn’t account for.
Secondly, it brings down your Return on Equity & IRR - because now more money is required by you for the same amount of profit.
The Good News
- Again, the good news is that Lead Developer: Development Feasibility Software already has this inbuilt. It takes into account the Bank's TDC & Construction Interest Reserve and calculates interest by using Developer's Equity First and debt 2nd.
- You don’t have to worry about a thing… it all happens in the background…
Project Related Site Value
Cash Flow Analysis
Project Related Site Value | Residual Land Value
Don't get confused by PRSV, it basically means the site's value based on its development permit.
If you would remember from Lesson # 1, I wasn't happy with the valuation. Because a lower commercial valuation based on my existing permit, meant that I will have to chip in more from my pocket.
And as a developer… your aim is to always be able to borrow the maximum amount, so you can increase your Return On Equity & IRR.
PRSV or Project Related Site Value is very similar to Residual Value Of Land - and is commonly used by professional valuers all over the world. Where it differs from Residual Value Of Land is in its treatment of GST or VAT if applicable.
I personally use PRSV, to make sure, given my allocated costs, I will get the valuation I am after. On the other hand, a lot of our clients in 🇺🇸 USA, 🇨🇦 Canada would simply use the residual land valuation method as GST and VAT do not apply to them.
If you are only after the Maximum Amount You Should Pay For Land, based on Its development potential - stick with Residual Value Of Land.
Simply enter your target development margin or your hurdle rate, and Lead Developer will give you the maximum amount you should pay for land, based on all the costs you have assumed for your project. In Lead Developer, you do not need to do much for this report, except for entering your desired hurdle rate.
My dispute with the valuer
As I was going through the valuation i.e. PRSV, provided by the Bank's Appointed Valuer, I was doing my own calculations to hack in to the valuers method of arriving at the site's value.
I could figure everything out, except for one little thing…
Entrepreneurial Margin For Profit And Risk: In the valuation, the valuer had a very high percentage, which had lowered the land value. This is exactly the same as your Hurdle Rate.
I first raised this with the bank manager I was dealing with who basically shot me down, saying the bank has to go with what the valuer / official appraiser has come up with.
So I put it to the bank differently. I said, I can understand every value that the valuer has used in the valuation. Some costs are high, but I understand where they are coming from so I accept - but what I cannot understand is the entrepreneurial risk margin or a hurdle rate of 24% when a similar project like mine would normally site between 15%-20%.
How did the valuer come up with 24%?
If he/she can explain me the logic behind 24%, I would happily accept the commercial valuation.
It turned out that the valuer had used this figure out of thin air & after a few phone calls and emails - the valuer revised this number to 18%, which increased the value of land for me, which basically meant that I could borrow more & hence use less amount of my own equity.
Entrepreneurial Margin For Profit And Risk is the same as Target Development Margin or your hurdle rate.
Its job is to put pressure on land value - because given a level of project costs, the only thing that can go down is the value of the land that you have paid. Valuers do that to cover their backside and lenders do that to mitigate risk further.
Needless to say, both Target Development Margin and Entrepreneurial Risk Margin calculations are covered in Lead Developer.
Residual Land Valuation Method Is Covered in all our Real Estate development feasibility softwares...
Use This To Impress Investors And Lenders
Ever wanted to impress your investors or lenders?
Now you can using Lead Developers' Summary Tab
Project Review At A Glance
Review your project at a glance or corresponding combined cash out flows at one place.
All your decision metrics, with option to tweak your hurdle rates…
Cost & revenue Analysis
Cost & Revenue analysis based on Area, Net Leasable or Saleable Area - broken down by each cost centre…
As well as Sensitivity Analysis At A Glance…
How Well Does Property Development Feasibility Suite Works?
Property Developer / Investor
All seminars, books I have been reading to become a property developer fade in comparison to your property development feasibility. Thanks for posting these videos mate, much appreciated.
Property Developer / Investor
Loved your Smart Calculator. Great when on the road and in a hurry to get quick overall picture of a development worth pursuing or not. Well done
Senior Lecturer In Real Estate Finance, Investment And Valuation At Cass Business School & Director I-Analysis Training
I was impressed – your “BoE” models are more detailed and well presented than most I’ve seen.