Real Estate Pro Forma

The password in community development these days is "public/private partnerships." The community and the private sector should work together to achieve public goals. If a partnership is to be a lasting one, however, each partner must understand what the other partner needs to get from the deal, and must be willing to see to it that the partner succeeds. Often, public planners and city managers find themselves negotiating "incentive packages" with developers. The public officials want to provide no more tax money than is necessary to get the project off the ground. The developer, on the other hand, tries as much as possible to package the deal using OPM ("other people's money"). It would seem that the partners are working at cross-purposes.

There are tools other than using tax funds to write down the cost of a project. A city can use its credit and good name to arrange debt financing for the project at below-market rates. Or the city could accept an equity position in the project, trading its early investment for a share of the equity recovered upon sale of the project. A city could assist the developer by acquiring and clearing the property for a development project, or using city staff to prepare a feasibility analysis for the project. There are any number of things that could be done; which ones will be effective depend on the project.

A real estate "pro forma," or financial statement, is a tool that is used to communicate all the relevant information about a real estate development project. It balances the costs of a project against the flow of income which the project will produce. It is through the pro forma that the public and private partners work out the details of their partnership.

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1996 A.J.Filipovitch
Revised 11 March 2005