If you are implementing a real estate development project, it is likely that you will require a business plan to provide investors. The experts at Pro Business Plans have worked with many real estate developers to prepare professional plans for investment and strategy. This article provides information about what is included in a commercial real estate business plan and how it is typically structured.
When preparing a business plan for real estate development, there are several unique factors that need to be considered. For instance, providing a detained analysis of the construction cost, the site analysis, comparable property valuation, and the financial structure. Several of these elements are unique to large scale commercial projects as investors will want to understand that the property is both feasible and will generate them a sizable return aligned with their fund’s requirements. The following sections will outline the more detailed elements about each component of a real estate development business plan.
The development plan outlines the full scope and underlying strategy of the real estate development project. This includes a comprehensive breakdown of the site, amenities included, and development agency . The development plan may briefly cover each area to the site layout according to the build specifications and the revenue that it will generate. If the property already exists and is for additional development or renovations, information about the existing property and photos are provided if it is leveraged or included in the equity offering.
Most banks investing in commercial real estate development projects will request a comprehensive feasibility study. We typically include at least a brief feasibility analysis for all real estate development business plans that provide information about the competition, build site analysis, and the key success/risk factors associated with the property. The feasibility study may also include a comparable construction cost analysis that reviews similar deals that have been developed and their associated total cost. This will provide information to investors about the feasibility of fulfilling the construction plans within the budget.
Whether you are approaching debt or equity investors, they are likely to request comprehensive financial projections aligned with the construction schedule and revenue structure. This will help banks to determine the coverage ratio and forecast the risk with equity investors to analyze the potential IRR/NPV on their investment. The financial projections are typically included over a five-year period or in some cases a ten-year period, depending on the construction schedule.
Some real estate investors may also request to see a sensitivity analysis to understand how macroeconomic events will impact the performance of the investment. For instance, how a decline in housing demand in a certain region will impact condominium sales or decline in regional employment will influence the rental price. These are often included on a case by case basis depending upon the requested information by banks and investors. However, it may not be needed for smaller residential development projects.
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