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.
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.
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.
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.
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.