Development Pro Forma and Draw Schedule Modeling

A development budget has three major components. Hard Costs include all physical construction: site work, foundation, structure, exterior envelope, interior finishes, mechanical/electrical/plumbing (MEP), and landscaping. Hard costs typically represent 60-70% of total development cost. Soft Costs include architecture, engineering, permits, legal, accounting, insurance during construction, property taxes during construction, marketing, and developer overhead. Soft costs typically represent 15-25% of total costs. Financing Costs include loan origination fees, construction interest (interest carry), commitment fees, and exit financing costs. The construction interest carry—interest that accrues during construction when there is no revenue to cover it—is often the most underestimated cost, potentially reaching 10-15% of the total development budget for longer construction timelines.

The draw schedule projects how construction loan funds are disbursed over the construction period. Unlike an acquisition loan where the full amount is funded at closing, construction loans are drawn in stages as work is completed. A typical 18-month construction project might have the following draw pattern: Month 1-3 (site work, foundation): 15% of hard costs. Month 4-8 (structure, framing, MEP rough-in): 35% of hard costs. Month 9-14 (exterior, interior finishes): 35% of hard costs. Month 15-18 (finishes, punch list, landscaping): 15% of hard costs. The draw schedule determines interest carry—you only pay interest on funds actually drawn, so front-loaded draws increase total interest cost. Model draws monthly to accurately calculate cumulative interest.

After construction completion, the property enters the lease-up phase with zero occupancy. Lease-up pace depends on market conditions, property type, and marketing effort—typical multifamily lease-up is 10-20 units per month in strong markets. Model the lease-up monthly: each month's revenue equals the number of occupied units multiplied by rent, with concessions applied to early movers (first 30-50% of units may receive one month free or reduced rent). Operating expenses begin at construction completion and ramp up as occupancy increases (utilities scale with occupancy, management fees scale with revenue, but insurance and taxes are full-cost from day one). Stabilization is typically defined as 90-95% occupancy maintained for 3 consecutive months—at this point, the property qualifies for permanent financing to replace the construction loan.