ProForma/Financial Feasibility

• INTRODUCTION AND OVERVIEW [1]
• GET TO WORK [2]
• FORMING A TEAM [3]
• ON LOCATION [4]
• FINANCE
• • ProForma/Financial Feasibility
  • Funding Resources [5]
  • Financing Strategies [6]

Printer Friendly [7] | Further Reading [8] | Sources [9]

Why Pro-Forma?

If you have downloaded the flowchart provided in Section 2.1 [2] which captures the key elements of Artist Space Development, then you may have noted the large area of work assigned to determining a project's feasibility. Among those key tasks is creating  financial pro-forma [10]. Determining whether to carry out a facility project; planning and refining the project's programming; applying for funding (whether for loans, grants or equity investments)-- are all reasons pro-forma are critical tools in the ASD process. Of course, a full feasibility report would go beyond the financials to further include information on the: property itself; development team; proposed project; and the form of ownership for the property (e.g. cooperative, condominium, rental, etc.)

Financial pro-forma for artist space are similar to most development projects. The developer needs to prepare a preliminary financial pro-forma from the very beginning of the project and consider financial feasibility:

• During Development – Can sufficient capital be identified and secured from potential resources to cover the total development costs?
• After Development – Can income projections cover both the cost of operating the property and the cost of paying back its debt?

What It Includes

LINC grantee, ArtistLink has provided a sample pro-forma [10] on its own website, which  provides a real-world sense of how financial projections are organized. Among the line items that pro formas include are:

Total Development Costs

• Hard costs – acquisition cost, construction cost (provided by your architect, structure engineers, etc)
• Soft Costs – professional fees, legal fees, financing fees, interest prior to completion, insurance, marketing, and possibly relocation

Revenue

• If homeowner property - sales revenue (permanent loans taken by individuals)
• If rental property – rent, non-rent income
• If mixed property – partly from sales revenue, partly from rent and other income
• In any of the above cases, consideration will need to be given to the tenants your project targets so that rent and/or sales prices can be projected accordingly. For example, will your project offer affordable units, market rate, both? The variance in prices will need to accounted for in your revenue projections.

Expenses

• Professional management
• Maintenance and repairs
• Utilities
• Marketing and advertisements
• Real estate taxes
• Reserves

Funding 

• see the following part for details

It is important to note that your preliminary financial pro-forma will be modified constantly as you acquire updated information about the property, tenants, and financing sources. As a living document and planning tool, the financial pro-forma is not only the work of financial specialist or project manager, but a joint effort of the entire development team.

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Further Reading

Hecht, Bennett L. Developing Affordable Housing: A Practical Guide for Nonprofit Organizations: Chapters 4, 5 and 12. New York: Wiley, 1999.

“The Development Pro-Forma.” ArtistLink. Date of Access: Oct 30, 2009 http://www.artistlink.org/?q=spacetoolbox/fordevelopers/financingspace/proformas [11]

Sources

Hecht, Bennett L. Developing Affordable Housing: A Practical Guide for Nonprofit Organizations. New York: Wiley, 1999.

Loft Studio Pro-Forma. Malden, MA. Date of Access:  Oct 30, 2009.  http://www.artistlink.org/files/Malden_Loft___Studio_Plan_April_2005.xls [10]

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