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Constructing Pro-formas

Real Estate I/S Potential Gross Income (PGI) - Vacancy & Collection (V&C) Effective Gross Income (EGI) + Other Income - Operating Expenses Net Operating Income -Capital Improvement Exp. (CI) Property Before-tax Cashflow (PBTCF). Finance I/S Sales - COGS Gross Profit

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Constructing Pro-formas

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  1. Real Estate I/S Potential Gross Income (PGI) - Vacancy & Collection (V&C) Effective Gross Income (EGI) + Other Income - Operating Expenses Net Operating Income -Capital Improvement Exp. (CI) Property Before-tax Cashflow (PBTCF) Finance I/S Sales - COGS Gross Profit - S&A Expenses EBIT Constructing Pro-formas

  2. Potential Gross Income (PGI) # of units x rent per unit; rent/ft2 x # of ft2 • Forecasting Growth: • In Equilibrium – • Disequilibrium: • Excess Supply – • Excess Demand – • What about Functional or and/or Economic Depreciation?

  3. Intra-building Lease Analysis • Suppose you are tasked with projecting the future rental income of a 10-unit commercial property. The facility currently is fully leased, with each tenant originally signing a five-year lease upon their occupancy date (which varies by tenant). Existing lease terms are:

  4. Calculating PGI • What is PGI for Year 1? • What is PGI for Year 2? • Notes:

  5. What Drives PGI??? • Individual Tenant Rents • Tenant #1 – • Tenant #2 – • PGI2= • Additional Considerations

  6. Calculating PGI, cont. • Now suppose you are analyzing a brand new 36 unit apartment complex set to open next fall across the street from the local university. You believe that under current market conditions, you can fully lease the facility at a rate of $1,200 per month. Each lease will be for a 1 year term, and general inflation is forecast to be 4 percent for the foreseeable future. A quick market analysis reveals the following information about similar complexes in the area:

  7. PGI Example #2, cont. • What is PGI1? • If real estate is an inflation hedge, calculate PGI for years 2 – 10: • Does age influence rent?

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