Basic financing mechanism

[pksohn]

We can add a very simple financing mechanism to the pro forma model. The pro forma model that Jessica Hitchcock shared with us and presented in class provides a good example.

Each of these can be added as config items (they would go in proforma.yaml, values for Santa Cruz example development in parentheses):

• Construction loan to cost ratio (70%)
• Loan fees (points) (2%)
• Interest rate (5.5%)
• Drawdown factor (60%)

And other variables can be calculated and factored into the profit calculation in the lookup method:

• Construction period (months) (21) - should be a function of development size
• Total construction cost
• Total loan amount
• Interest on construction loan
• Points on construction loan
• Total financing costs

The total financing cost is added to the total development costs, and then the calculation proceeds as usual. The way Jessica calculates profit is exactly the same as how pro forma calculates it, so I think this approach would work well.

I think this provides some helpful levers on the financing side, e.g. how do interest rates affect development?

@conorhenley would love any feedback.

[conorhenley]

I don't have strong initial impressions other than additional levers that are reasonably easy to incorporate but not required are probably good. Do we have any idea of how these inputs will vary across a region? Or are we really just looking at situations where interest rate changes apply across the board and affect willingness to take risks?

[waddell]

I think we should elicit some feedback about other property types besides the MF project in Santa Cruz that I think these are coming from, just to check that the inputs needed are already covered.

[pksohn]

Addressed with #54. Paul, agreed - this is just a prototype but we reevaluate as we test to make sure all necessary inputs are covered.