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What is a development sources and uses statement?

Development sources and uses, solved with the loan

A development sources and uses statement lists every cost of a real estate project (land, hard costs, soft costs, contingency and financing costs) against the money that pays for it, usually a construction loan and equity. The two sides must be equal. The hard part is construction interest: it depends on the loan, which depends on total cost.

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Uses: the real estate development budget

  • Land: purchase price and closing costs.
  • Hard costs: the building itself. For example, you might include sitework here or as its own line.
  • Soft costs: design, permits, legal, insurance and the like.
  • Contingency: a cushion against the budget.
  • Financing costs: construction interest and loan fees.

In CRE Build you can take over a line as Default, Hardcode, Alternate method (where offered) or Custom formula (expense and budget lines only), with a plain-English readback.

Sources: development construction debt and equity

The construction loan is often sized on loan-to-cost. More generally, CRE Build sizes the loan as the smallest of LTC, LTV, DSCR, debt yield and any stated amount, and names the binding constraint. See multifamily loan sizing.

Equity covers the rest. Equity & Waterfall: LP/GP tiers with hurdles, splits and promote, plus preferred equity; partner contributions, distributions and multiple. The model also reports peak equity and the month it hits.

Why development sources and uses goes circular

Interest is a use. Interest depends on the loan size and when the money is drawn. The loan size depends on total uses. In a spreadsheet that means a circular reference or an iteration setting.

CRE Build solves construction interest and fees together with total cost, as an iterative funding fixed point with no circular references.

Draw schedules: Straight line, Front-loaded, Back-loaded, Bell, or Manual monthly; save your own curves in Settings › Draw curves.

Taxes during development and construction

The model carries construction-period taxes and reassessment at stabilization (or on sale). There's also an alternate method, "Reassess on sale": taxes stay on the basis for the hold, and the buyer's reassessment lands at sale.

Takeout and extensions

Takeouts (Cash-out or Takeout only) and extensions (If needed, Disclosed or Exercised) are modeled.

Share the development budget with your lender or partner

Share a private copy with your lender, partners or equity by email address. You choose which sections the copy carries; a section you hold back is absent from their copy. They work in their own copy with a free account and send changes back as proposals you accept or decline. See lender review.

Take it into the full development model

Start from the full multifamily development model, or screen the site first with the free feasibility model.

Worked example (illustrative numbers, not a real deal)

Example deal with invented round numbers.

Uses before financing

Use
Land
Amount
$3,000,000
Use
Hard costs
Amount
$13,000,000
Use
Soft costs
Amount
$2,000,000
Use
Contingency
Amount
$1,000,000
Use
Subtotal before financing
Amount
$19,000,000

Example assumptions: loan = 65% of total cost (LTC). Financing costs = 7.0% of the loan (a 1.0% fee plus 6.0% interest from an example rate, average balance and term).

The circularity, settled by iteration

Pass
1
Loan (65% × total)
65% × $19,000,000 = $12,350,000
Financing costs (7% × loan)
$864,500
Total cost
$19,864,500
Pass
2
Loan (65% × total)
65% × $19,864,500 = $12,911,925
Financing costs (7% × loan)
$903,835
Total cost
$19,903,835
Pass
3
Loan (65% × total)
65% × $19,903,835 = $12,937,493
Financing costs (7% × loan)
$905,624
Total cost
$19,905,624
Pass
Converged
Loan (65% × total)
$12,938,711
Financing costs (7% × loan)
$905,710
Total cost
$19,905,710

Closed-form check: loan = $12,350,000 ÷ (1 − 65% × 7%) = $12,350,000 ÷ 0.9545 = $12,938,711.

Final sources and uses (rounded)

Uses
Land
$3,000,000
Sources
Construction loan (65%)
$12,938,711
Uses
Hard costs
$13,000,000
Sources
Equity (35%)
$6,966,999
Uses
Soft costs
$2,000,000
Sources
Uses
Contingency
$1,000,000
Sources
Uses
Financing costs
$905,710
Sources
Uses
Total
$19,905,710
Sources
Total
$19,905,710

Leave out the financing line, or hardcode last pass's interest, and the two sides stop matching.

Questions

What is a sources and uses statement in real estate development?

It lists every use of capital in a development project (land, hard costs, soft costs, contingency and financing costs) against the sources that fund it, usually a construction loan and equity. The two totals must match.

Why is construction interest circular in a development budget?

Interest is part of total cost, the loan is sized on total cost, and interest depends on the loan. Each one changes the others, so a spreadsheet needs a circular reference or iteration to settle.

How does CRE Build handle capitalized interest in development?

It solves construction interest and fees together with total cost as an iterative fixed point, with no circular references in your model.

How is the development construction loan sized?

As the smallest of loan-to-cost, loan-to-value, DSCR, debt yield and any stated amount. CRE Build names the binding constraint.

What happens to equity in a development sources and uses?

Equity funds whatever the loan doesn't. In CRE Build, the Equity & Waterfall section covers LP/GP tiers with hurdles, splits and promote, plus preferred equity, partner contributions, distributions and multiple.

What does CRE Build cost for development modeling?

Pro is free.

Model your development budget

Start free (no card required). Or try the free feasibility model.