Pro Forma Financial Statements
ScottWay Capital utilizes underwriting and pro forma financial statements to evaluate
prospective projects. The information below is offered to give insight on how
we approach evaluating commercial or income producing properties. Although we
use underwriting and pro forma statements in fulfilling our commercial loan and
investment transactions, we also offer Pro Forma creation as a stand-alone
service that we provide to our clients who need assistance in creating or
evaluating pro forma financials. In order to learn about what we do, please see
below for information pertaining to our services and practices regarding
commercial and income producing property.
Pro Forma:
A real estate pro forma is commonly used to discuss and prepare financial information.
With multiple parties involved in one real estate transaction, i.e. buyers,
sellers, investors, and lenders, the pro forma acts as a uniform way to
represent all the financial information pertaining to an income producing
property. Pro formas are frequently used for the following; obtaining debt
financing, securing equity partners, and are also used for real estate transactions
to express the financial details of a property being bought or sold. More
specifically, a project’s pro forma models the property’s cash flow. It does
this by summarizing historical cash flows and states current operating figures.
By displaying monthly and annual figures of income, property expenses, cost of
capital, and other pertinent operating figures, the pro forma models the
property’s revenue and expenses. Based on both historical and current operating
data, the pro forma then make projections about future performance. Pro formas
are used for all property types where there is a stream of cash flows generated
by the property. This would include multi family, office, retail and special
use. In addition, it might also be used by investors or lenders who are
evaluating a portfolio of single family residences.
The Importance
By creating a pro forma, you as the principal will have the ability to analyze
future cash flows and their significance. Future cash flows are ultimately
determined so the parties involved can measure the value of the project by
measuring return on capital. Regardless of the project, we strive to understand
the motivation of our clients and the intended use of the pro forma.
Ultimately, a well written pro forma will make assumptions that all parties can
agree upon.
How We Can Help
Pro Formas are written in many ways. As a result there is not a set template that
can be used to create a pro forma. Although there are similar metrics in each
pro forma, the size, format and level of detail vary. The use or motivation of
the pro forma typically determines the structure of the financials. For
example, in early negotiations a simple pro forma may be used to communicate a
summary of information to gain interest or it may be used as an instrument to
secure initial commitment. In contrast, a more detailed pro forma may be
required by a lender in order to determine the validity of a project and
subsequently their decision to make a loan.
As a service to you, ScottWay Capital can fully customize a pro forma for your
income producing real estate. By evaluating your needs and taking measure of
your audience we can create a fully tailored pro forma that will convey your
position. Regardless of the intended use, we strive to understand your projects
so that we can document your cash flow and generate an expected return on
capital invested.
Commercial Underwriting
On all projects, ScottWay Capital reviews all documentation associated with a
transaction. By evaluating this information upfront, we align ourselves with
our clients’ goals and determine likelihood for success. Below is more
information in regards to this process.
When assisting you with your commercial project we review your financials and
project details. Because underwriting is the way by which lenders, investors,
developers and brokers determine the probability of a successful real estate
transaction, we are careful to examine and underwrite each file before
initiating any action or introducing the transaction to the intended parties. By
doing a thorough review up front we have found that the chance for successful
negotiations is much higher. Ultimately, ScottWay Capital tests the feasibility
of a project by analyzing financial assumptions about current and expected cash
flows.
There are two important aspects of commercial financing: the underwriting done by the
party seeking capital, either through a sale or specific financing and that
done by the party providing or issuing capital. Those who are acquiring capital
intend to present themselves in the best way possible. In contrast, those who
are offering capital will make conservative conclusions and attempt to expose
any shortcomings so that they can measure their perceived risk. The transaction
concludes when the two sides are able to meet about the proposed value and
subsequent terms.
Broker Memorandums
In addition to pro forma services, we also have the ability to create full broker
memorandums. If you are looking to sell your property, or are representing
someone who is selling their property, and you need a complete offering
package, pro forma included, we can help you. We have samples available upon
request. To learn more about these services, please call us at 619.209.3544.
