Building a Financial Model for a Mixed-Use Commercial Development Project
What factors need to be considered in building a financial model for a mixed-use commercial development project, and how can the cash flow, net present value (NPV), and internal rate of return (IRR) be calculated in this scenario?
Factors to Consider in Financial Modeling
Calculating Cash Flow, NPV, and IRR
To calculate the cash flow, start by estimating the rental revenues for each unit type based on the provided information. Consider occupancy rates, rental rates, and square footage to determine the total revenue. Subtract operating expenses such as vacancy, bad debt write-offs, property management fees, insurance, taxes, and operating costs to calculate the net operating income.
The NPV and IRR can then be calculated using the cash flow projections. For the unlevered NPV, use an 8% discount rate, while for the levered NPV, use a 15% discount rate to account for the cost of debt. Sensitivity analysis can help assess the impact of varying rental prices, financing percentages, and bad debt expenses on the project's profitability.
By considering these factors and performing detailed financial analysis, the REIT can evaluate the feasibility and potential returns of the mixed-use commercial development project.