Development Pro Forma:
Unlocking Success in Real Estate

A thorough understanding of project costs is essential for effective pro forma planning. Below is a detailed breakdown of the key cost categories:

1. Acquisition Costs

These include the costs associated with purchasing and preparing the land for development:

• Land Price: Determined using the land residual method.
• Property Transfer Tax (PTT): A significant upfront expense, typically 3–5% of the land value.
• Due Diligence: Costs for environmental assessments, appraisals, and legal fees to confirm the site’s suitability for development.

2. Design Costs

Design costs typically represent 4-5% of total hard costs and involve fees for both primary and specialized consultants:

• Primary Consultants: Architects (prime), structural, mechanical, electrical, and civil engineers.
• Specialist Consultants: Environmental, acoustic, envelope, and transportation engineers, as well as interior and signage designers.

Fees vary depending on the project type. For example, high-rise buildings typically incur 3.2% of total costs, while low-rise projects range from 4% to 5%.

3. Construction Costs

Construction expenses form a substantial portion of any pro forma. These costs require precise estimation due to their variability:

• Off-Site and On-Site Civil Work: Infrastructure upgrades like roadwork, utility connections, and sidewalks.
• Below-Grade Construction: Includes basements and parking structures, typically costing $120-160 per sq ft for parking stalls.
• Above-Grade Construction: Comprises the superstructure (floors, walls, and roofs) with costs scaling higher for high-rise developments.
• Environmental Remediation: Cleanup of contaminants, such as oil tanks or asbestos, is often necessary for urban sites.
• Demolition Costs: Removal of existing structures at approximately $10-15 per sq ft.
• Sustainability Features: Incorporating green building systems (e.g., LEED certification) can increase upfront costs but reduce long-term operating expenses.
• Labour and Materials: Costs fluctuate based on market demand, material quality, and supply chain dynamics.
• Construction Management Fees: Typically 4-5% of total hard costs, covering project coordination.

4. Municipal Levies

Municipalities often impose levies to fund infrastructure improvements:

• Development Cost Charges (DCCs): Support citywide improvements like parks and utilities.
• Community Amenity Contributions (CACs): Municipalities may capture up to 75% of the land value increase from rezoning.

5. Marketing and Sales Costs

Marketing and sales activities are crucial for generating interest in the project and securing pre-sales:

• Marketing Campaigns: These typically account for 5% of project revenue, including advertising and presentation centers.
• Pre-Sales: Required by lenders to de-risk the project, often with a target of 60% of units pre-sold before construction begins.

6. Financing Costs

Financing includes costs related to securing and servicing loans:

• Land and Construction Loans: Interest rates vary depending on loan terms and project risk.
• GST Refunds: Federal GST on materials may be refundable for certain rental projects.

7. Permits and Approvals

Navigating the regulatory landscape is a critical step in any development:

• Costs include rezoning applications, subdivision approvals, and building permits.
• Additional expenses may include street use permits, construction bonds, and public art contributions.

8. Warranty and Insurance

Protecting the project and its stakeholders is essential:

• Home Warranty Insurance: Mandatory for residential projects, typically $2,000 per unit.
• Wrap-Up Liability Insurance: Covers risks associated with construction activities.

9. Unexpected Costs

• Easements and Rights-of-Way: Legal restrictions may limit site usage.
• Approval Delays: Extended timelines can inflate holding costs and delay revenue generation.