{"id":1130,"date":"2018-07-16T15:31:54","date_gmt":"2018-07-16T22:31:54","guid":{"rendered":"https:\/\/brooksresources.com\/?p=1130"},"modified":"2018-07-16T15:43:34","modified_gmt":"2018-07-16T22:43:34","slug":"navigating-the-risky-terrain-of-real-estate-development","status":"publish","type":"post","link":"https:\/\/brooksresources.com\/2018\/07\/navigating-the-risky-terrain-of-real-estate-development\/","title":{"rendered":"Navigating the Risky Terrain of Real Estate Development"},"content":{"rendered":"

\"\"I\u2019m an adrenaline junky at heart. Most weekends you can find me shredding single track, back country trails on my bike. I love going fast through the forest, and the more technical the terrain, the more I feel that natural high. Of course, it doesn\u2019t always go my way. There are the occasional involuntary dismounts that hurt my ego as much as my body. But I always get back on, searching for the next adventure that\u00a0(hopefully)\u00a0won\u2019t kill me.\u00a0\u00a0<\/span><\/p>\n

In our business, evaluating project feasibility isn\u2019t all that different than mountain biking. It\u2019s about assessing risk and calculating a potential reward. You might get scraped and bruised along the way, but it could be worth it in the end.\u00a0\u00a0<\/span><\/p>\n

In the real estate development world, we\u2019re constantly looking for and evaluating new project opportunities\u2014looking for the ones that will pump our veins full of adrenaline and make a tidy profit for our company\u00a0at the end of the ride.\u00a0\u00a0<\/span><\/p>\n

We have\u00a0two\u00a0main\u00a0tools we use for evaluating potential projects. The pro forma is the formal tool we use to understand the variables, process assumptions and forecast the bottom line. The second, less formal tool is the \u201cgut check\u201d. This less tangible tool is a simple question: does it\u00a0feel\u00a0<\/i>right? Both tools are essential in evaluating the risk vs reward before\u00a0deciding\u00a0to move forward with a project.\u00a0\u00a0<\/span><\/p>\n

Building\u00a0a pro forma sounds\u00a0very daunting. And I probably shouldn\u2019t admit\u00a0this, but\u00a0developing the pro forma (a simple spreadsheet that calculates estimated costs and potential revenues) isn\u2019t difficult. The challenging part is building\u00a0realistic\u00a0assumptions<\/i>\u00a0that the costs and revenues are based\u00a0upon.\u00a0It takes some leg work\u00a0and\u00a0immense\u00a0understanding of your business and your market\u00a0to\u00a0build assumptions that have a decent chance of\u00a0panning out.\u00a0<\/span><\/p>\n

For an accounting geek like me, this is the fun part. Because this is the creative part of my job where anything is possible\u2026\u00a0you just need to adjust the assumptions until the numbers work. And sometimes the numbers don\u2019t work, and that\u2019s okay. Numbers don\u2019t lie.\u00a0It\u2019s better to walk away from an opportunity knowing why it won\u2019t work,\u00a0than\u00a0to make a poor decision.\u00a0\u00a0<\/span><\/p>\n

Now, assumptions always include inherent risk. And Brooks Resources isn\u2019t immune to making bad assumptions. Sometimes external factors like economic conditions, policy decisions, or even natural disasters, can hit you when you\u2019re least expecting it, taking you off your projected course.\u00a0You may have to patch yourself up and take a different route.\u00a0We constantly update pro\u00a0formas, even after we move forward with a project. They are a flexible tool that helps you maximize profit by adjusting the assumptions based on actual conditions and keep the project moving\u00a0in a positive direction.\u00a0\u00a0<\/span><\/p>\n

The second tool,\u00a0the almighty gut check,\u00a0supplements the numbers to provide us a complete picture of the decision we\u2019re tackling. With the years of\u00a0experience\u00a0we have on our team, and a clear understanding of what skills are in our wheelhouse (and what\u2019s not), the gut check is an effective way to evaluate how a project\u00a0feels.\u00a0<\/i>S<\/i>ometimes the gut doesn\u2019t align with the numbers, but perhaps\u00a0the project\u00a0accomplishes a different goal and we\u2019re willing to make a little less profit. Or maybe we see a trend that isn\u2019t reflected in the numbers. It\u2019s still risky, but most of the time, our collective gut serves us well.\u00a0\u00a0<\/span><\/p>\n

I admit it,\u00a0calculating internal rates of return makes my heart pump a little faster.\u00a0I get a thrill out estimating construction costs and evaluating historical sales data.\u00a0You may think I\u2019m crazy. And you\u2019d be right if you knew what I survived on my bike last weekend.\u00a0\u00a0<\/span><\/p>\n

 <\/p>\n

\u00a0About the Author<\/strong><\/p>\n

\"\"
Jade Mayer, Vice President & Chief Financial Officer<\/figcaption><\/figure>\n

Jade has been with Brooks Resources since early 1999. As a CPA, he started his career in public accounting and held controller positions for various manufacturers prior to joining Brooks Resources. Jade has served as a member of the Budget Committee of the City of Bend, Oregon, as well as on boards for the Deschutes River Conservancy, Central Oregon Trail Alliance, Bend Spay & Neuter Project and Economic Development for Central Oregon.\u00a0 In addition to finance, Jade enjoys spending his time with various activities outdoors.<\/p>\n

Jade is a Leadership Bend alumna, Class of 2003.<\/p>\n","protected":false},"excerpt":{"rendered":"

I\u2019m an adrenaline junky at heart. Most weekends you can find me shredding single track, back country trails on my bike. I love going fast through the forest, and the more technical the terrain, the more I feel that natural high. Of course, it doesn\u2019t always go my way. There are the occasional involuntary dismounts […]\n","protected":false},"author":3,"featured_media":1131,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"xn-wppe-expiration":[],"xn-wppe-expiration-action":[],"xn-wppe-expiration-prefix":[]},"categories":[38],"tags":[],"_links":{"self":[{"href":"https:\/\/brooksresources.com\/wp-json\/wp\/v2\/posts\/1130"}],"collection":[{"href":"https:\/\/brooksresources.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/brooksresources.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/brooksresources.com\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/brooksresources.com\/wp-json\/wp\/v2\/comments?post=1130"}],"version-history":[{"count":2,"href":"https:\/\/brooksresources.com\/wp-json\/wp\/v2\/posts\/1130\/revisions"}],"predecessor-version":[{"id":1140,"href":"https:\/\/brooksresources.com\/wp-json\/wp\/v2\/posts\/1130\/revisions\/1140"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/brooksresources.com\/wp-json\/wp\/v2\/media\/1131"}],"wp:attachment":[{"href":"https:\/\/brooksresources.com\/wp-json\/wp\/v2\/media?parent=1130"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/brooksresources.com\/wp-json\/wp\/v2\/categories?post=1130"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/brooksresources.com\/wp-json\/wp\/v2\/tags?post=1130"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}