What is a pro forma in real estate development?

Take a 48-unit apartment building on a $2,400,000 lot (the multifamily pro forma shows it per unit). The pro forma says it will cost $14,848,230 to build, including $918,230 of interest on the construction loan, earn $983,520 a year once leased, and sell for $17,882,182. Those three numbers decide the deal. The rest of the pro forma is how you get to them.

The five parts of a development pro forma

Costs. Land, hard costs (the construction contract, sitework and materials), soft costs (design, engineering, permits, impact fees, legal, insurance, property taxes during construction, the developer fee) and a contingency for what the estimates miss. In the example, hard costs are 68.9% of the cost before interest.

Financing. How much is borrowed and at what rate. Construction loans are usually sized as a share of total cost, called loan-to-cost. The example borrows 65% at 7.5%, and the interest is added to the loan each month rather than paid in cash.

Timeline. Months of construction and months of lease-up. Time matters twice: interest accrues every month, and the IRR falls the longer the money is tied up. The example takes 18 plus 9 months.

Income. Stabilized net operating income: rent and other income once the building is leased, less vacancy and operating expenses. The example's $1,353,600 of potential rent becomes $983,520 of NOI.

Exit. What the finished building is worth, usually its NOI divided by the cap rate buyers will pay at the time of sale, less selling costs. At 5.5%, the example is worth $17,882,182.

What developers read from it

Yield on cost against the cap rate is the quickest test. If a finished building of this kind trades at a 5.5% cap rate, building one only makes sense if it yields more than 5.5% on its cost. How much more is a judgment about risk; the yield on cost guide works through it.

How it differs from a pro forma for an existing building

A pro forma for buying a stabilized building starts with rent that already exists. A development pro forma has a construction period in front of it: costs spent over months, equity going in first, a loan drawn as work is done, interest building up on that loan, and a lease-up before the income arrives. Most of the risk sits in that period, which is why a development pro forma is monthly while an acquisition model can be yearly.

The loop in every development pro forma

The lender sizes the loan on total cost. Total cost includes the interest. The interest depends on the size of the loan. A spreadsheet that references these cells in a circle needs Excel's iterative calculation switched on, and one error can then get stuck in the loop until someone breaks it by hand. The free pro forma template solves the loop exactly instead, in the online version and in the Excel download.

Where pro formas go wrong

Contingency is a common one. In Rabbet's 2026 State of Construction Finance Report, 92% of lenders kept their required baseline contingency unchanged from the year before and 58% of developers held their allocations flat, even as costs rose. A pro forma is a forecast, and the inputs that feel safest, like a contingency percentage copied from the last deal, deserve the most suspicion.

The other is the exit cap rate. It is set by the market on the day you sell, often two or three years out. In the worked pro forma example, a cap rate half a point higher takes more off the profit than a 10% overrun on hard costs.

After the land closes

The pro forma does not retire once the deal is approved. It becomes the budget, split into cost categories with contracts committed against them, and the loan becomes a schedule of monthly draws. Both are free here: the construction budget template and the draw schedule template.