Case Study: Financial Modeling for a Mixed-Use Real Estate Project

Mixed-use real estate projects combine residential, commercial, and sometimes industrial spaces into a single development. These projects are complex due to their diverse income streams and varied cost structures. This case study provides a comprehensive financial model for a hypothetical mixed-use development, illustrating how to project revenues, expenses, and evaluate the overall profitability of the project.

Project Overview

Attribute	Description
Project Name	Metropolis Center
Location	Downtown Metropolis
Total Land Area	100,000 sq. ft.
Total Built-up Area	300,000 sq. ft.
Components	Residential, Commercial, Retail
Development Period	3 years
Operational Period	10 years (post-development)

Development Cost Breakdown

Component	Cost per sq. ft.	Total Area (sq. ft.)	Total Cost
Land Acquisition	-	100,000	$10,000,000
Residential	$150	150,000	$22,500,000
Commercial	$200	100,000	$20,000,000
Retail	$250	50,000	$12,500,000
Infrastructure	-	-	$5,000,000
Total Development Cost			$70,000,000

Revenue Projections

Residential Income

Year	Units Sold	Sale Price per Unit	Total Residential Income
1	20	$500,000	$10,000,000
2	30	$525,000	$15,750,000
3	50	$550,000	$27,500,000
Total	100		$53,250,000

Commercial Rental Income

Year	Occupancy Rate	Rent per sq. ft./year	Total Commercial Income
4	70%	$30	$2,100,000
5	80%	$31	$2,480,000
6	85%	$32	$2,720,000
7	90%	$33	$2,970,000
8	95%	$34	$3,230,000
9	95%	$35	$3,325,000
10	95%	$36	$3,420,000
Total			$23,245,000

Retail Rental Income

Year	Occupancy Rate	Rent per sq. ft./year	Total Retail Income
4	75%	$40	$1,500,000
5	85%	$42	$1,785,000
6	90%	$44	$1,980,000
7	95%	$46	$2,185,000
8	95%	$48	$2,280,000
9	95%	$50	$2,375,000
10	95%	$52	$2,470,000
Total			$14,575,000

Operating Expenses

Annual Operating Expenses

Component	Year 4	Year 5	Year 6	Year 7	Year 8	Year 9	Year 10
Maintenance	$500,000	$525,000	$551,250	$578,813	$607,754	$638,141	$670,048
Utilities	$300,000	$315,000	$330,750	$347,288	$364,652	$382,884	$402,028
Property Taxes	$200,000	$210,000	$220,500	$231,525	$243,101	$255,256	$268,019
Insurance	$150,000	$157,500	$165,375	$173,644	$182,326	$191,442	$201,014
Total Expenses	$1,150,000	$1,207,500	$1,267,875	$1,331,269	$1,397,832	$1,467,723	$1,541,109

Net Operating Income (NOI)

NOI Calculation

Year	Total Income	Total Expenses	Net Operating Income (NOI)
4	$3,600,000	$1,150,000	$2,450,000
5	$4,265,000	$1,207,500	$3,057,500
6	$4,700,000	$1,267,875	$3,432,125
7	$5,155,000	$1,331,269	$3,823,731
8	$5,510,000	$1,397,832	$4,112,168
9	$5,700,000	$1,467,723	$4,232,277
10	$5,890,000	$1,541,109	$4,348,891
Total	$34,820,000	$9,370,308	$25,449,692

Financing and Cash Flow

Financing Assumptions

Attribute	Value
Loan Amount	$50,000,000
Interest Rate	5%
Loan Term	20 years
Monthly Payment	$329,000

Annual Debt Service

Year	Monthly Payment	Annual Debt Service
1-10	$329,000	$3,948,000

Cash Flow Before Taxes

Year	Net Operating Income (NOI)	Annual Debt Service	Cash Flow Before Taxes
4	$2,450,000	$3,948,000	-$1,498,000
5	$3,057,500	$3,948,000	-$890,500
6	$3,432,125	$3,948,000	-$515,875
7	$3,823,731	$3,948,000	-$124,269
8	$4,112,168	$3,948,000	$164,168
9	$4,232,277	$3,948,000	$284,277
10	$4,348,891	$3,948,000	$400,891
Total	$25,449,692	$27,636,000	-2,186,308

Conclusion

This case study demonstrates the comprehensive financial modeling process for a mixed-use real estate project. By projecting revenues, expenses, and evaluating net operating income, developers and investors can assess the viability and profitability of such projects. Financial modeling helps in making informed decisions, ensuring successful real estate investments.