Pro forma

A pro forma is a forecast. It lists what a building is expected to collect in rent, what it will lose to vacancy, what it will spend on operations, what it owes the lender, and what is left for the owners. Developers build one before deciding whether to buy land, lenders review it before lending, and investors compare it against the returns they require.

A development pro forma also includes the cost side: land, hard costs, soft costs, financing, and contingency, summed into a total development cost. Setting the income the building can produce against what it costs to build is the core test of whether a project works. If the projected net operating income is too small relative to cost, the project does not get built, or it gets redesigned until it does.

Pro formas are assumptions, not facts. Every line depends on judgments about rents, construction prices, interest rates, and timing, and small changes in those inputs can move the result from feasible to infeasible. Our illustrative 100-unit building is a pro forma: at a $2,150 rent it shows NOI of $1,851,000 and a yield on cost of 7.71%, and every number in it is an assumption we state openly.

The reason a pro forma matters for housing costs is that it is where a policy choice becomes a rent number. A new fee, a longer approval, or a higher interest rate lands on a specific line, and the underwriting that follows shows what rent has to be for the project to still make sense.