Stress-test the deal before the market does
Lesson 3 of 6 · Underwrite the development
1 · Learn the move · Comparison matrix
A base case on a development deal is a set of hopes with a spreadsheet around it. The levers that break a build-to-hold project are not only the market ones. Before rents or the permanent rate ever matter, the entitlement can run long, a condition can arrive with a price, and the carry keeps running the whole time. And a project that stands on its own loan, with no corporate line behind it, has two tests to pass: the committee's yield-on-cost, and the DSCR the lender requires when the loan converts, whether the spec building's small suites have leased on schedule or not. A model asked to 'run some downside scenarios' will invent the downside and then invent the result, and neither is worth anything. The honest split is a matrix. You name the levers and your own downside values, from your memo, your engineer's range, your lender's quote. The model lays them out as a grid, one lever at a time and then the combinations you choose, and every result cell is RUN IN YOUR MODEL. You run it and paste the outputs back. Then the model reads the matrix you filled: which single lever crosses your hurdle, which combination does, which cells were never run. It computes nothing and softens nothing. The judgement about whether the downside is survivable stays with you and your partners.
Build a stress matrix. Rows: each lever I list, at the downside values I give, then the combinations I name. Columns: LEVER | BASE VALUE AND SOURCE | DOWNSIDE VALUE AND SOURCE | YIELD-ON-COST | DSCR AT CONVERSION | CLEARS YOC HURDLE? | MEETS DSCR MINIMUM?. Every result cell reads RUN IN YOUR MODEL. Do not invent a downside value or a result. [levers] [my downside values] [hurdle] [loan quote's DSCR minimum]
2 · Your turn. You write the prompt
Your base case on a 29.1-acre site in Keswell County pencils above your committee's hurdle. The site will carry three single-story flex buildings, the first on spec, on the project's own construction-to-permanent loan. Headquarters' question is what happens if the rezoning takes a year longer, the engineer's high estimate on the turn lane and sewer extension comes true, hard costs move, tenants take more office than planned, the spec building's suites lease slowly, and the permanent rate is higher at conversion. You built the matrix last week, ran every cell in your cash-flow model, and now have the outputs. Write the prompt that reads the filled matrix without adding a number of its own.
Write the prompt for this scenario as given, or swap in a real one from your own work. The score works the same either way.
Remember: the AI sees only your prompt, not this page. If the situation isn't in your prompt, it doesn't exist.
Optional. These shape the output when you run your prompt below, not your score.