How does one underwrite a downside contingency in a PERE deal? Would you just include a contingency line below NOI taking x% of NOI or are there other ways to incorporate this?
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Capitalize it into your project costs. Take a % of total project cost or Y1 NOI if that’s what you’re referring to.
Agree with cpgame I feel like the contingency should be baked into the respective line items (above NOI) that you are referring to when those costs materialize in your budget assuming this is a development deal and using DCF.
hard cost, soft cost and land cost contingency in a construction budget has 0 effect on NOI.
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