1. Presented at: APA Northeast Region 1 Conference June 25, 2015 1 Financial Analysis for Planners

2. 2 Outline 1.Introduction to Financial Analysis 2.Pro Forma Review and Hand Out 3.Case Studies 4.Question and Answer

3. 3 Financial Analysis: An Overview

4. Financial Analysis 4 What: Way to measure the financial feasibility of a particular project or development concept. Who: Planners, economic development professionals, public officials, developers, property owners…. everyone involved in the project. Why: To determine if a project will be viable as planned or whether there are “gaps” that need to be addressed. When: After a development concept has been created but before public investment or commitments have been made. How: Its simple!

5. Financial Analysis 5

6. Back to Basics – Key Terms 6 Gross Income Total potential income from a property – all rental income Effective Income Actual income from a property after subtracting vacancy and credit loss Operating Expenses: Expenses related to operation (taxes, utilities, management, maintenance), but limited only to what the property owner pays Net Operating Income (NOI): Effective income minus operating expenses Debt Service Coverage Ratio: NOI/Debt service payment (i.e. ratio of net income to payment requirement) – it better be >1!!! Internal Rate of Return: The implied interest rate the developer “earns” on his/her equity outlay

7. Pro Forma Checklist 7 Project What is the development concept? How much will it cost to purchase the property? How much will construction cost? Income Average rental rates How much will the project sell for after 10 years? Expenses What is the average vacancy rate? Who will pay utilities, taxes and other charges Debt Service How much of the project will be financed? What is the interest rate?

8. Pro Forma Example 8 Tip: Use assessed value as a proxy for sale price if unknown.

9. Pro Forma Example 9 Tip: Check LoopNet or online listings to get typical rent rates

10. Pro Forma Example 10

11. Pro Forma Example 11

12. Pro Forma Example 12 To figure out annual debt service payments using Excel: Formula: PMT(Rate,Nper,PV) Rate: permanent financing interest rate (6%) Nper: number of payments or term (30) PV: present value or amount being mortgaged ($4,042,886) Result: fixed debt service payments ($293,711)

13. Pro Forma Example 13 Tip: Take the Cash Flow Analysis out to Year 10

14. Pro Forma Example 14

15. Big Questions 15 Bank wants to know…will this project make enough money to repay the loan? Developer wants to know… will this project make me enough money that it is worth the risk? What is the debt service coverage ratio? What is the internal rate of return?

16. Bank – Debt Service Coverage Ratio 16 What is the debt service coverage ratio? = Net Operating Income Debt Service Must be greater than 1.25

17. Developer – Internal Rate of Return 17 What is the internal rate of return?

18. Developer – Internal Rate of Return 18 What is the internal rate of return? IRR = 11% Don’t retreat! Reload!

19. The Numbers Don’t Work–What Now? 19  Consider different uses  Tax abatements  Tax credit programs  Grant programs for specific uses  Low interest loans  Loan terms – lower equity contribution

20. Why Pro Formas Matter in the Planning Process…

21. Putting the Pro Forma to Work: Testing Project Feasibility Master Plans Site Specific Development Funding

22. Avoid Un-Buildable Projects

23. Applying the Pro Forma to Create Opportunity

24. The Grand Hotel…looking not so grand

25. A “grand” vision identified…

26. But would it work?

28. A “grand” result!

29. Vision: Downtown Hotel Master Plan: 56 units $120 / night 60% occupancy Reality: Viable project! Location, programming & marketing key to success

30. It’s Not Always Good News…but Best to Know the Truth City of Lockport City of Binghamton Steuben County

31. Vision: Waterfront Mixed Use Master Plan: 25 residential units and a single occupant restaurant Reality: Low rate of return, Tax abatements needed

32. Re-evaluate mix of uses Weigh pros and cons of making building taller, to accommodate more residential units Negotiate price of land purchase Research potential abatement and incentive programs, such as 421-m Now What?

33. The Site Today

34. Future Vision

35. Re-evaluate use Financing Tax abatements Project to be further evaluated, with alternatives considered Now What?

36. Potato Vodka Distillery Craft farm distillery producing premium vodka made with unused potatoes from Steuben County

37. Benefits Direct and Indirect Jobs Payments to Potato Farmers Tourism But… Numbers Don’t Add Up

38. Grant funding from CFA Preferential financing Free or reduced rent Pro Forma provided direction to County and stakeholders for future CFA application Now What?

39. 39 Thank You Michael N’dolo, CEcD Vice President, Camoin Associates michael@camoinassociates.com 518-899-2608 x103 www.camoinassociates.com/APA.aspx All files, including handouts, powerpoint and interactive spreadsheet: Kimberly Baptiste, AICP Business Segment Manager, Bergmann Associates kbaptiste@BERGMANNPC.com 585-232-5137 x323