What Is a Real Estate Development Pro Forma?

A pro forma projects costs, revenues, and returns to determine if a deal pencils.

Cost Side

Land cost, hard costs (55-70% of total), soft costs (20-35% of hard costs), contingency (5-15%).

Revenue Side

Build-to-sell: sale price, absorption, commissions. Build-to-rent: NOI = gross rent - vacancy - expenses, capitalized value = NOI / cap rate.

Key Metrics

Return on cost, yield on cost, IRR (15-25% target), equity multiple (1.5-2.5x), cash-on-cash.

Common Mistakes

Stale cost data, ignoring soft cost variability, optimistic absorption, insufficient contingency, no downside modeling.