Underwriting mixed use properties and how to structure its pro forma
How do you structure your pro formas for a mixed use property when underwriting?
[{"id": "hq5x6uf", "text": "Choose your own adventure.\n\nPersonally, I'd build a model that integrates the assumptions and analysis so it's just more lines in the assumptions and cashflow on the RLV analysis, more lines on the development budget, more columns on the delivery &amp; leaseup schedule.", "replies": [], "depth": 1}, {"id": "hq61i3c", "text": "Usually Build out a proforma for each and then a combined one typically if the secondary property type is less than 20% of the gross income i don\u2019t even classify it as mixed use", "replies": [], "depth": 1}, {"id": "hq62cyn", "text": "Basically agree with u/vocabularylessons, though their first sentence makes it sound like you\u2019d have a separate tab just for the retail rather than additional lines as described after.\n\nUsually I\u2019ll just see a separate gross income line, followed by a separate vacancy rate that\u2019s the same or greater than the MF applied to the commercial space. I don\u2019t typically see retail expenses broken out, probably because of the predominant overlapping of the two areas from a management perspective. There might not be any necessary reason for breaking out the expenses, save for unique situations which are relatively common. In those cases, you can add a unique expense line item for retail where needed.\n\nI\u2019ve rarely seen an entire model devoted to the retail unless the retail consists of the majority of the space. Even then, typically all can be contained within the same pro forma.\n\nYMMV depending on sector, context and modeling needs. Maybe some people only rely on independent models that roll up into a global pro forma, but I don\u2019t believe they\u2019re typical, at least for MF/retail buildings.", "replies": [{"id": "hq6v5c6", "text": "You explained it pretty well. By 'separate model' I just meant having a different excel workbook for mixed use projects separate from, e.g., a workbook for solely residential that's more trim. Though you can always use macros to hide unused rows.", "replies": [], "depth": 2}], "depth": 1}, {"id": "hq62mwl", "text": "Mixed use being what? Identify the use types (office/resi/retail/hotel or other) and work create different assumption and cash flow sections (or tabs) for each use type. Then roll it up to one master cash flow on another section or tab which has Revenue, Costs, NOI. Financing and everything below NOI can be done on the master cash flow. Then entirely up to you on how you want to present. \n\n[Use this template to give you an idea of how to structure your model. ](https://www.adventuresincre.com/mixed-use-development-model-condo-retail/)", "replies": [], "depth": 1}, {"id": "hq6cl8c", "text": "All of the revenue producing pieces should be modeled separately and valued out at the appropriate cap rate for that use in that submarket. Then you combine all revenues and values to get a property-level value and cap rate.", "replies": [], "depth": 1}, {"id": "hq7erom", "text": "Sum of the parts. Model out each use then create a summary sheet. Ideally you should run comps and PV cash flows all separately and then run the summary calcs.", "replies": [], "depth": 1}, {"id": "hq7gg9q", "text": "Without detail on the project, you would want to build out separate cash flows for each asset type (ie - ground floor retail and apartments). Model both separately and roll them up into a master cash flow. You will want to model the developments costs for each product type as well as a operating cash flow. So break your model into two sections: development and operations.", "replies": [], "depth": 1}, {"id": "hq7s4nx", "text": "Each it\u2019s own flowing into one", "replies": [], "depth": 1}, {"id": "hq7yvmh", "text": "Institutional development worker here - we typically underwrite all components separately (I.e. fully separate models) by asset class then roll up cash flows into a consolidated summary.\n\nIf incremental NOI is less than 10% of total we\u2019ll just lump it into another major component (e.g. ground floor retail in an apartment tower would just get a couple lines in the resi PF).", "replies": [], "depth": 1}, {"id": "hqa5lan", "text": "I've found it best to split up the revenue projections. Do one for the residential and another for whichever other source of income (retail, etc.). I would combine the expenses below. This tends to make it easy to look and analyze.", "replies": [], "depth": 1}]