Preliminary Financial Analysis – SIPS New Construction
Note: This analysis is preliminary and based on current assumptions. The financial projections will be refined as more precise data becomes available and final unit mix is determined.
Executive Summary
We conducted two independent financial analyses for the proposed 120-unit SIPS New Construction development project to establish baseline financial expectations. Using consistent assumptions, both methodologies demonstrate strong potential returns, confirming the project’s financial viability.
Analysis Methodology
For this preliminary assessment, we employed two distinct analytical methods:
- IRR Calculator Tool: Our proprietary web-based tool that processes approximately 25 key inputs to generate IRR and related metrics. This analysis yielded an Equity IRR of 25.47% and an Equity Multiple of 5.22x.
- Traditional Pro Forma Analysis: A comprehensive spreadsheet model with detailed revenue and expense projections over a 10-year period. This method produced an Equity IRR of 20.43% and an Equity Multiple of 4.86x.
For simplicity in this preliminary phase, all units were modeled as two-bedroom units of 750 square feet, with a standardized rental rate of $1,298 per unit. The final development will feature a diversified unit mix, which will be incorporated in subsequent financial models.
Key Financial Assumptions
| Parameter | Value | Notes |
|---|---|---|
| Total Development Cost | $15,380,000 | Includes land, vertical, horizontal, and soft costs |
| Capital Structure | 80% Debt / 20% Equity | $12,304,000 debt / $3,076,000 equity |
| Interest Rate | 6.50% | 30-year term |
| Exit Cap Rate | 7.00% | For terminal value calculation |
| Vacancy Rate | 3.00% | Conservative assumption |
| Bad Debt | 2.00% | Of gross potential revenue |
| Annual Rent Growth | 3.00% | Year-over-year escalation |
| Expense Growth | 2.00% | Year-over-year escalation |
| Operating Expenses | 28% of Revenue | Including management, utilities, insurance, maintenance |
10-Year Performance Projections
| Year | NOI | Debt Service | Net Income | Leveraged ROI |
|---|---|---|---|---|
| 1 | $1,153,881 | $942,209 | $211,672 | 6.88% |
| 2 | $1,188,497 | $942,209 | $246,288 | 8.01% |
| 3 | $1,224,152 | $942,209 | $281,943 | 9.17% |
| 4 | $1,260,877 | $942,209 | $318,668 | 10.36% |
| 5 | $1,298,703 | $942,209 | $356,494 | 11.59% |
| 6 | $1,337,664 | $942,209 | $395,455 | 12.86% |
| 7 | $1,377,794 | $942,209 | $435,585 | 14.16% |
| 8 | $1,419,128 | $942,209 | $476,919 | 15.50% |
| 9 | $1,461,702 | $942,209 | $519,493 | 16.89% |
| 10 | $1,505,553 | $942,209 | $563,344 | 18.31% |
Exit Valuation (Year 10)
| Parameter | Value |
|---|---|
| Year 10 NOI | $1,505,553 |
| Exit Cap Rate | 7.00% |
| Gross Sale Proceeds | $21,507,896 |
| Remaining Loan Balance | $10,374,659 |
| Net Sale Proceeds | $11,133,238 |
| Total 10-Year Net Income | $3,805,862 |
| Combined Return | $14,939,100 |
Moving Forward: This analysis will be refined as we finalize the unit mix, obtain updated construction pricing, and secure specific financing terms. We anticipate these preliminary projections will provide a solid foundation for our discussions with potential financing partners.