If you are starting a commercial real estate company or individual project, it is likely that you will require a business plan. The experts at Pro Business Plans have worked with many commercial real estate companies to prepare professional plans for investment. This article provides information about what is included in the plans and how they are typically structured.
There are several unique things to consider when preparing a custom business plan for commercial real estate. Investors will want to understand the profitability potential and key underlying risks associated with your investment. If you are a commercial development company, presenting your prior experience in performing similar deals will also be important. Therefore, the plan will communicate both the specific commercial real estate project and the background of the commercial development company as a whole. The following sections outline each specific component of the project and how they combine to build a professional investment proposal.
Most of the plan is dedicated to providing a comprehensive analysis on the property including a detailed breakdown of each aspect of the property. Many commercial real estate projects generate revenue from more than one aspect of the property, for instance a restaurant at a resort or fitness subscription membership for residential community. Therefore, it is important to segment and separately describe each point of the property and revenue by source. If the development project is for renovations or additions, it will describe the existing site and the planned additions.
The construction plan for the commercial development project outlines a breakdown of hard and soft costs as estimated internally or provided by a construction firm. A detailed breakdown of the costs is also provided such that the company may phase-in investment at various tranches aligned with the construction schedule. The construction plan will also help to provide insight for when the project will be completed and form the basis for the financial projections. Many commercial real estate projects will complete portions of the project so that it may generate cash flows from segments of the development process as it is completed.
Unlike many speculative investments, the financial projections for commercial real estate can be determined with a greater degree of certainty. The financial forecasts for a commercial real estate project are generally performed over a five-year period or at least three years in which the development project is cash flow positive. These will be used by investors in order to determine the potential IRR / NPV or risk level if the investment is being made by a lender.
The most effective way to perform the financial projections is to base it on the existing performance of the real estate project in light of the new capital injection. If it lacks prior operating history, comparable investments will be analyzed with a similar site layout and regional demographics.
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