Real estate feasibility terminology: a glossary for comparing models

Distinguish the document from its purpose

A pro forma, feasibility study and development appraisal can all contain a development forecast. Their names do not guarantee identical contents. A feasibility study may include investigations that sit outside the financial model, while a pro forma may refer specifically to the forecast schedules. Agree the actual deliverable before comparing two reports.

Underwriting describes an assessment supporting a financing or investment decision; it is not simply another word for entering inputs. The OCC's commercial real estate guidance places pro forma review within a wider assessment of project and market evidence. A developer's proposed case and a lender's assessed case may therefore differ. Keep those versions identifiable rather than presenting a single unexplained set of numbers.

Sources: Office of the Comptroller of the Currency: Comptroller's Handbook: Commercial Real Estate Lending, version 2.0

Separate value, revenue and a land offer

Gross development value, or GDV, describes the value attributed to the proposed completed development on a stated basis. In England's planning viability guidance it can include sales values or capitalised net rental income. Always identify the proposal, information date and any mixture of sale and retention. A completed asset value is not necessarily the amount, timing or net proceeds of a real sale.

A residual land amount is calculated after allowing for the stated development costs and return convention. A purchase price is a proposed or agreed transaction amount. An opinion of market value belongs to a valuation assignment on its relevant basis and date. These figures can be compared, but they should not silently replace one another. RICS emphasises the importance of scope, basis and purpose when describing valuation advice.

• Gross sales: define whether the figure precedes incentives, selling costs and tax.
• Net proceeds: list the deductions and confirm whether debt repayment is included.
• Residual: state whether it covers land alone or land plus acquisition costs.
• As-is, completed and stabilised: identify the physical and operating state assumed, and the relevant date.

Sources: Ministry of Housing, Communities and Local Government: Planning Practice Guidance: Viability; RICS: When is a figure a valuation? Understanding scope, purpose and basis under Red Book

Read NOI and cash flow on their stated basis

Net operating income, or NOI, concerns property operating income after the operating expenses included in its definition. It is not automatically cash available to equity. Debt service, capital expenditure, reserves and investor-level items require separate treatment. Compare the detailed income and expense lines before assuming two NOI figures use the same convention.

Fannie Mae's multifamily analysis definitions provide a concrete example: net cash flow follows deductions for capital expenditure or replacement reserves from NOI. That is a defined reporting context, not a universal meaning of the words net cash flow. If a spreadsheet uses that label for cash after debt service, identify the difference explicitly.

Stabilised describes an assumed ongoing operating state; it does not mean that lease-up has already occurred. An exit capitalisation rate converts a specified income measure into an estimated value under a stated method. It does not itself account for the path to that income or guarantee the disposal price. Keep operating forecasts, valuation assumptions and actual cash events separate.

Sources: Fannie Mae: Multifamily Analysis of Operations Definitions, Form 4254

Define profit and return before comparing percentages

Development profit is meaningful only with a stated revenue and cost scope. A profit margin can use revenue or cost as its denominator. Internal rate of return, or IRR, uses the timing of the chosen cash flows. Net present value, or NPV, discounts those cash flows at an explicit rate. The Microsoft function guidance also distinguishes the period-based inputs used by its IRR and NPV functions; dated schedules require an appropriate dated method.

Consider an original annual-period example with a payment of 10 million today and a receipt of 12 million exactly one year later. With no other flows, profit is 2 million, profit on cost is 20%, profit on revenue is 16.67% and IRR is 20%. At a 10% discount rate, NPV is 0.909 million. If the receipt arrives after two years, nominal profit stays 2 million but annual IRR falls to approximately 9.54%. The figures disagree only if their definitions have been lost.

Sources: Microsoft Support: IRR function; Microsoft Support: NPV function

Check the basis of funding and risk terms

Sources and uses reconcile where the defined project funds come from and how they are applied. They do not prove that the sources arrive before the uses. Peak funding need is the largest gap under a stated cash schedule; peak debt and peak equity depend on how that gap is financed. Specify whether restricted cash, reserves and intra-period movements are represented.

Loan-to-cost and loan-to-value use different denominators. State the eligible cost or valuation basis, the loan amount measured and the date. Debt-service coverage compares a defined available-income or cash-flow measure with debt service for a defined period. Read the facility or reporting definition rather than inserting an assumed universal formula.

A base case is the reference set of assumptions. A sensitivity changes specified independent inputs while dependent calculations respond. A scenario combines assumptions into a coherent case. Contingency is a stated allowance, not proof that every risk is covered. These labels become useful when their input changes, inclusions and interpretation are visible.

Create a translation record before transferring values

When teams work across countries or systems, create a short dictionary for the project. Record each field's meaning, unit, currency, area basis, tax basis and timing convention. Translate hard and soft cost groupings into actual included items. Convert square feet and square metres deliberately, but also check whether both measurements describe the same physical area.

Put the most consequential terms on the review page: what is valued or sold, when cash is received, what costs are included and whose return is shown. Follow the pro forma and regional guides for context, the returns guide for calculations and the cash-flow guide for timing. A shared vocabulary should expose differences behind familiar acronyms.