Financial Modeling Methodology

2.1 Cost Categories

All cost categories support unlimited dynamic line items - users can add as many individual cost entries as needed within each category, each with its own basis, timing, distribution curve, and steepness.

2.2 Cost Distribution Curves

Costs are distributed over time using one of four configurable curves, each with three steepness levels (mild, standard, sharp):

All curves produce weights that sum exactly to 1.0, ensuring total cost integrity.

2.3 Construction Indexation

Costs are indexed annually using compound growth:

Indexed Cost = Base Cost × (1 + Annual Indexation Rate)^(Years Elapsed)

Years elapsed is calculated as floor((month - 1) / 12), meaning indexation steps up at the beginning of each 12-month period. Acquisition costs are not subject to construction indexation.

2.4 Construction Contingency

Each building supports a configurable contingency percentage applied proportionally to hard cost draws:

Monthly Contingency = Hard Cost Draw(month) × Contingency%
Total Contingency = Σ Monthly Contingency (over construction period)

Contingency is distributed in proportion to the hard cost draw curve, ensuring it follows the same timing pattern as physical construction expenditure.

2.5 Acquisition Cost Allocation

For multi-building projects, acquisition costs can be allocated by percentage across buildings. If no allocation is specified, 100% is assigned to the first building by default. This affects per-building cost metrics and capitalization.

3.1 Pre-Sales (During Construction)

Pre-sale units are distributed across the construction timeline using the selected distribution curve. For each pre-sale tranche:

• Deposit is collected at the point of sale: Units × Sale Price × (1 - Discount%) × Deposit%
• Balance is collected at the end of construction: Units × Sale Price × (1 - Discount%) × (1 - Deposit%)
• Marketing costs are deducted: Units × Sale Price × Marketing%
• Discrete unit distribution uses Hamilton's method (Largest Remainder) for non-uniform curves. When weights are uniform (e.g., linear distribution), units are evenly spaced across the full duration to prevent clustering

3.2 Post-Sales (After Construction)

Post-sale units are distributed between a start month and end month. Price adjustments (positive or negative) are applied relative to the base sale price:

Post-Sale Price = Base Sale Price × (1 + Price Adjustment%)

3.3 Sale Price Indexation

Both pre-sale and post-sale revenue are subject to annual sale price indexation:

Indexed Sale Price = Base Price × (1 + Annual Sale Price Indexation)^(Years Elapsed)

This applies to deposits, balances, and post-sale proceeds, reflecting property value appreciation over the project lifecycle.

3.4 Rental Income

For units that are neither pre-sold nor post-sold ("hold units"):

Gross Potential Rent = Hold Units × Monthly Rent per Unit × Rent Indexation Multiplier
Effective Rent = GPR × Occupancy Rate

Rent commencement: Rental income begins individually per building when that building's construction period ends - not when the last building completes.

One indexation clock: every amount you enter (rent, operating expenses, other income, costs and sale prices) is in today's prices. All of them grow in yearly steps counted from project month 1, using floor((month - 1) / 12). A building that opens after a 24-month build therefore opens at its rent grown by two years of indexation.

No growth before a building opens: an optional project setting. When it is on, rent, operating expenses and other income skip every yearly step that falls on or before the month they start earning (each building's opening, each other-income line's start), so they open at exactly the amounts entered and grow from there. Existing buildings are unaffected, and construction costs and sale prices still grow from month 1. Imported deals start with it on, because the rents in offering memoranda and models are often already the figures expected at opening.

Growth by year: rent and operating-expense growth can be a single rate or a rate for each project year from year 1 to year 14; year 14's rate continues after it. A single rate first applies in month 13 (year 1 is the amount entered); a by-year schedule can also set year 1, applied from month 1. A unit type or expense line with its own rate (single or by year) uses it in place of the project-wide rate.

3.5 Commercial Lease Rollover

For commercial spaces relying on standard tenancy assumptions, the model applies probability-weighted Lease Rollover mechanics:

To ensure an accurate exit valuation via direct capitalization, the defined Stabilized NOI intentionally ignores the temporary drag of periodic downtime and concessions.

3.6 Hospitality Revenue

Units typed as hospitality use a specialized revenue model based on hotel industry metrics. Instead of a flat monthly rent, revenue is driven by a 12-month seasonality schedule specifying:

Monthly Revenue = Rooms × ADR × Days in Month × Occupancy%

The seasonality array is aligned to actual calendar months using the project start date, so seasonal patterns (high/low season) are anchored to the correct time of year. Hospitality units bypass the take-up ramp - their occupancy is controlled entirely by the seasonality schedule.

3.7 Take-Up Ramp

Occupancy ramps from 0% to the target occupancy rate over the configurable take-up period. The ramp shape is configurable using any of the four distribution curves:

If month ≤ take-up duration:
    Occupancy = Target Occupancy × Curve Weight at (month / take-up duration)
Else:
    Occupancy = Target Occupancy

Where: Target Occupancy = 1 - Vacancy Rate

The vacancy rate is set globally in General Parameters and applies to all standard rental units. Individual unit types can override it with a per-unit vacancy rate, useful for mixed-use buildings where retail and residential carry different structural vacancy assumptions. Hospitality units and units with lease rollover enabled always use their own vacancy models and ignore this override.

Hospitality units are excluded from the take-up ramp - their occupancy is driven entirely by their seasonality schedule.

3.8 Revenue Sharing (Operator Agreements)

Buildings can operate under a tiered revenue-sharing model where gross operating revenue is split between the landlord and an operator (e.g., hotel management company):

Independent revenue items flagged as "subject to revenue share" are routed through the same tiered split. The landlord's net rent after the split flows into project cash flows; the operator's share is tracked separately.

3.9 Independent Revenue (Grants & Subsidies)

The model supports project-level revenue streams that are not tied to any specific building - such as government grants, energy subsidies, tax incentives, or other external income.

Each independent revenue item is defined by:

Revenue is distributed across the defined time window using the same weighted-curve engine as cost items, ensuring weights sum to 1.0. Recurring items (fixed-monthly, fixed-annual) are distributed evenly rather than via weighted curves. Only recurring items are capitalized into the exit NOI for valuation purposes.

Fixed vs. Variable Split

Each expense item has a configurable fixed-vs-variable percentage:

Adjusted Monthly OpEx = (Annual Amount × Fixed%) + (Annual Amount × Variable% × Current Occupancy)
                        ─────────────────────────────────────────────────────────────────────────
                                                        12

Variable expenses scale with actual occupancy relative to stabilized occupancy (EGI Ratio = Actual EGI / Stabilized EGI). For hospitality units, the stabilized baseline uses nominal full occupancy rather than seasonal rates, ensuring variable expenses properly scale down during off-season.

OpEx indexation: Fixed (annual and monthly), per-sqm and per-unit bases are indexed annually from project month 1. Percentage-based items (% of rent, % of EGI, % of Total Cost) are not indexed independently: they move only with the figure they are a percentage of.

5.1 Dynamic Loan Tranches

5.2 Construction Draw Funding

During periods where costs exceed revenue, the model draws from equity and active loans. Funding can follow two methods:

Multi-Building Master Facility: The platform enforces exactly 1 primary Construction/Acquisition loan. If a project has multiple buildings starting at different times, this single facility stays open and dynamically draws down to fund all subsequent buildings (acting as a Master Development Facility). Users cannot originate a second, separate draw-down construction loan later in the timeline.

Iterative TDC Solver: Because capitalized interest affects total development cost (which in turn affects the equity/debt split), the model uses an iterative solver (converging to within $1) to determine the correct equity quantum. A second re-estimation pass runs on actual cost arrays to ensure monthly parity.

What Total Development Cost includes. TDC is the cost of building the asset plus the interest the loan itself funds. Capitalized and PIK interest are part of TDC, because the loan advances them and they sit in its balance. Interest paid in cash during construction is not: it is a financing cost equity pays as it falls due, so the model reports it beside TDC as its own line rather than inside it. The equity tie-out is Equity in Sources & Uses + cash interest = total equity required, and the sum of the Uses equals TDC exactly.

5.3 Pre-Sale Treatment

Pre-sale revenue generated during construction can be applied in four ways:

Pre-sale offsets are managed through a pooling mechanism with a forward-looking smart release system. Excess pre-sale revenue beyond what future months will consume is released immediately rather than held in reserve.

5.4 Variable Rates and Loan Indexation

Variable rate (index plus spread). A loan set to a variable rate is charged its stated rate plus a base-rate spread:

Effective Rate = Interest Rate + Base Rate Spread

The model holds that rate flat for the life of the loan. It does not project a forward index curve, so a rate rise is tested as a scenario (the Interest Rate override in section 12) rather than forecast.

Annual Indexation grows the principal, not the rate. This option models a loan whose balance is linked to an index (for example a CPI-linked loan). Each month the balance is increased, and interest is then charged on the increased balance:

Indexation Increase(month) = Balance × Annual Indexation / 12
Balance = Balance + Indexation Increase
Interest(month) = Balance × Effective Rate / 12

The increase is added to the loan balance and reported with capitalized interest. Because an amortizing payment is recalculated every month from the current balance (6.3), the payment on an indexed loan rises as its balance does.

5.5 Loan Sizing

Every loan is sized by one of five methods, chosen per loan:

When a loan originates it retires any loans it is configured to pay off. If it sizes above the retired balances plus exit and prepayment fees, the surplus is a cash-out; if it sizes below them, the shortfall is funded by a mandatory equity draw in that month.

5.6 Loan Fees & Penalties

Each loan can have multiple fee items and a year-based prepayment penalty schedule (up to 5 years):

5.7 Value-Add Renovation Financing

For existing building projects, renovation costs can be partially funded by active loans:

Debt-Funded Renovation = Monthly Renovation Draw × Renovation Funding %
Equity-Funded Renovation = Monthly Renovation Draw × (1 - Renovation Funding %)

6.1 Construction Period Interest

Interest each month is computed against the loan balance after that month's draw has been added, using an end-of-month convention:

Monthly Interest = (Beginning Balance + Current Month Draw) × Annual Rate / 12

This is a conservative approximation that treats new draws as accruing a full month of interest in the month they are funded. Real construction loans typically accrue interest daily; this convention slightly overstates capitalized interest vs daily accrual, which is a deliberate conservative bias for underwriting purposes.

6.2 Capitalized vs. Cash-Pay Interest

In equity-first mode with capitalized interest, interest is first allocated to equity while the equity budget has room, with any excess allocated to debt. This prevents over-drawing debt beyond the target LTV.

6.3 Permanent Loan Amortization

Standard mortgage amortization formula:

Monthly Payment = Principal × (r × (1 + r)^n) / ((1 + r)^n - 1)

Where:
    r = Annual Rate / 12
    n = Amortization Period in months, less any grace period
        (defaults to the loan term when no amortization period is set)

Interest and principal components are tracked separately for P&L and balance sheet purposes. The payment is recalculated every month from the current balance, the rate and the months left on the amortization schedule. On a plain loan this gives the same level payment as a fixed schedule; it changes only when the balance is moved by something else, such as indexation (5.4).

Amortization period vs. loan term. These are two different numbers and they do different jobs. The term is when the loan is due; the amortization period is the schedule the monthly payment is calculated on, and it is normally the longer of the two. A 5-year loan written on a 25-year schedule pays a 25-year payment for 5 years and then repays the remaining balance in one sum. Leaving the amortization period blank means the loan fully amortizes over its own term, with no balloon.

Maturity. When a loan reaches the end of its term with a balance still outstanding, the model repays that balance in full in the maturity month and shows it in the monthly cash flow and the Remarks column. Contractual exit fees apply; prepayment penalties do not, since reaching the maturity date is not a prepayment. If another loan is configured to retire it, that refinance takes precedence and no balloon is recorded. If the term runs to the sale, the exit settlement repays it instead.

7.1 Direct Capitalization (Exit Valuation)

Exit NOI = Stabilized Annual NOI + Recurring Independent Revenue (annualized)
Exit Value = Exit NOI / Exit Cap Rate
Net Proceeds = Exit Value - Selling Costs - Loan Payoff - Exit Fees - Prepayment Penalties

Stabilized NOI at exit is calculated using rents and OpEx indexed to the exit month on the project clock, with lease-rollover bumps counted from each building's own opening. Only recurring independent revenue items (fixed-monthly, fixed-annual) that are still active at exit are capitalized into the exit NOI, at their amount grown to the exit year - one-time grants are excluded.

7.2 Discounted Cash Flow (DCF) Analysis

The DCF module provides an alternative valuation metric:

DCF Property Value = NPV of Operating Cash Flows + Discounted Terminal Value

The DCF output includes: NPV of operating cash flows, discounted terminal value, DCF property value and value per sq.m, premium vs. PV of cap-rate exit (apples-to-apples), and premium vs. total development cost.

7.3 Price for Target Return (Residual Land Value)

You set a target levered (equity) IRR, and the model solves for the purchase price that just achieves it. The Dashboard shows that price, the current purchase price, and the difference between them (Headroom). On a ground-up deal, where the purchase price is the land, this is the residual land value.

Variable:      the purchase price (the first fixed-amount line in
               Acquisition Costs); other acquisition lines stay as entered
Method:        binary search, 60 iterations, each a full model run
Search range:  $0 to 2 × total project revenue (exit value + unit sales)
Result:        rounded to the nearest dollar

It recalculates whenever the deal changes. It is on by default for new projects at an 18% target, and not shown in Refinance Analysis mode. If no purchase price reaches the target, no result is shown. The AI assistant answers "what can I pay for X% IRR" with the same solver, so the two always agree.

9.1 Profit & Loss

• Revenue: rental income, independent revenue, and unit sales (pre-sale deposits and balances, post-sale proceeds) when the cash is received
• Operating expenses: per building, indexed. NOI = revenue − operating expenses
• Selling and marketing costs of unit sales
• Cost of units sold: each unit-sale receipt takes its share of the property's book value, by sales value: receipt / (unit-sale receipts still to come + net exit value)
• Interest expense: all interest except what a loan capitalizes during construction, which is part of the property's cost instead
• Loan exit fees and prepayment penalties paid at the sale
• Depreciation: straight-line at the Depreciation Rate (General Parameters) × the property's cost, monthly, starting the month after construction completes
• Gain on sale of property: exit value − selling costs − book value at the sale
• Income tax: the Corporate Tax Rate (General Parameters) × taxable income (pre-tax income after losses carried forward)
• Tax loss carryforward: Losses in one year reduce taxable income in subsequent years

Returns are pre-tax. Both rates default to zero. Tax appears in the P&L and as tax payable on the balance sheet, and is not deducted from any cash flow, so the IRR, equity multiple, DSCR and waterfall are all before income tax, the usual basis for comparing real estate deals.

9.2 Balance Sheet

Every line is built from the monthly cash flow; nothing is solved for:

Assets:
    Property    Cost less accumulated depreciation. Cost = acquisition, hard and soft
                costs, renovation, turnover CapEx (TIs and LCs), interest capitalized
                during construction and loan fees; reduced by the cost of units sold,
                and removed at the sale
    Cash        From the cash flow: the cash the waterfall holds back as its reserve,
                otherwise zero, since all levered cash flow is distributed or
                contributed in the month it arises
Liabilities:
    Loans       Outstanding balances; zero after the sale repays them
    Tax payable Income tax from the P&L (not in any cash flow, see 9.1)
Equity:
    Equity contributed − Distributions paid + Retained earnings

Check = Assets − (Liabilities + Equity)

The check is a real test, not a forced zero. Because cash comes from the cash flow, any amount the statements failed to account for would show up as a nonzero check. It is held at zero by automated tests on every year of every test project, and on every saved project when measured in October 2026. Its first run found a real engine error: a refinance loan sized below zero, fixed the same day (see 5.5). After the sale, the balance sheet ends at zero: no property, no loans and no cash.

9.3 Annual Cash Flow

Monthly data is aggregated into annual summaries showing: gross revenue, vacancy loss, effective gross income, operating expenses by category, Net Operating Income, debt service (interest + principal), and levered and unlevered cash flows.

10.1 Standard Tiered Waterfall

Distributes project cash flows between General Partner (GP) and Limited Partner (LP) investors using the following cascade:

GP catch-up. The target is the GP's share in the first promote tier. The catch-up speed is 100% (all catch-up cash to the GP) or 50% (split evenly with investors), or it can be switched off. Profit to date is distributions minus contributions for each party:

Catch-Up Cash = (Target × LP Profit − GP Profit × (1 − Target)) / (Speed − Target)

GP receives  Catch-Up Cash × Speed
LPs receive  Catch-Up Cash × (1 − Speed)

After the catch-up, GP profit equals the target share of total profit. Catch-up runs only when the speed is above the target and investors have already made a profit.

10.2 Bifurcated Waterfall

Separates project cash flows into two independent streams, each with its own distribution logic:

Surplus operating cash above the monthly target is swept into a retained earnings reserve. At a capital event (sale or refinance), the reserve is released and merged into the capital event pool. If operating cash falls short of the target, the reserve is drawn down to cover the deficit.

Distributions never exceed the cash the deal produces. If operating cash and the reserve together fall short of the operating target, investors receive what is available. The shortfall is not funded from outside the deal: preferred return keeps accruing on unreturned capital and is paid from refinance and sale proceeds, ahead of the GP's profit split. A sponsor guarantee of a fixed distribution is a separate deal term and is not modeled.

10.3 Preferred Return Accrual

10.4 Hurdle Rate Types

How an IRR hurdle is applied. In each month with cash to distribute, the engine works out how much more the senior investor class can receive in that month before its IRR reaches the tier's hurdle. It discounts the class's cash flows to date at the hurdle rate; the amount that would bring that net present value to zero is the room left in the tier:

r = (1 + Hurdle)^(1/12) − 1                      (monthly hurdle rate)
NPV = Σ CashFlow(t) / (1 + r)^t, for t = 0 … current month
Room in Tier = max(0, −NPV × (1 + r)^(current month))

Cash up to that room, grossed up by the class's share in the tier, is distributed at the tier's split; anything above it moves to the next tier.

10.5 Cash Reserve

The engine looks ahead at future negative cash flow months and reserves sufficient cash to cover them, preventing premature distributions that would require capital calls. A configurable lookahead window limits how far ahead the reserve looks.

10.6 GP Co-Investment

GP can contribute equity alongside LPs with configurable options:

• Subordinated: GP capital and preferred return is recovered after all LP classes are made whole
• Pari-Passu: GP capital is treated with equal priority to LP classes
• GP Preferred Return: Configurable rate independent of LP preferred return

11.1 Dynamic Capital Pooling

• Sequential Funding: The net cash-out from a refinance event in Project A flows upstream to fund the required equity injection for Project B.
• Timeline Normalization: Projects are temporally aligned to a master timeline. A project's start date is strictly determined by the exact month the prerequisite refinance event triggers.
• Shortfall Tracking: The engine tracks portfolio-wide unspent cash surpluses and shortfalls, highlighting broken chains where refi proceeds are insufficient to fund the next deal without out-of-pocket investor injections.

11.2 Portfolio Analytics

A consolidated master P&L aligns the discrete cash flows of every project onto a single calendar grid.

Tax & Regional Conventions

Tax calculations in OneStopReal are simplified for general financial modeling. Property taxes, transfer taxes, and related fiscal items are modeled as flat Operating Expense or Soft Cost line items with standard annual indexation. Users should adjust these items to account for jurisdiction-specific taxes such as VAT, transfer taxes, stamp duties, or reassessment rules applicable in their market.