Budgets, Cash flow, and Feasibility

A discounted cash flow model, regardless of the product type, is a dynamic investigation of the product's ability to satisfy its debt service and investor returns throughout the entire life of the project by discounting future revenue to determine the comparable present value of the investment opportunity. I am fortunate in the MLPD Program that I take classes in both the College of Architecture (which focuses heavily on construction and design) and the College of Business (which focuses primarily on financial analytics). This interdisciplinary teaching has given me a wide perspective on budgeting, cash flows, and financial feasibility by not relying on single methods of valuation like capitalization rates.

Typically in any performance, you play how you practice. No one expects to perform exponentially better than how they have practiced on a consistent basis, or at least they should not. The discounted cash flow modeling methods that I learned during my graduate coursework serve as a projection for the financial success of assets. These projections are not set in stone; however, I am taught to never assume that assets will perform better than projected or that things will get better in time, because often times they do not. Real estate development is about minimizing risk, and in a projection/future-focused industry where nothing can be trusted, the discounted cash flow analysis can provide a degree of trust and a conservative but realistic ground in which to stand.