Short answer: Development projects rarely fail because of one big mistake. More often, small overruns, slow draws and unapproved change orders add up until the budget and the lender relationship are under strain. A detailed budget, disciplined draw process and monthly cost-to-complete forecast keep projects on track and investors informed.
Building a sound development budget
- Land and acquisition costs including closing costs and carry
- Hard costs construction, site work and materials
- Soft costs design, permits, legal, financing and insurance
- Contingency a realistic reserve for unknowns
- Interest reserve carry costs during construction and lease-up
Managing draws and change orders
- Draw process: reconcile each draw to the budget, invoices, lien waivers and inspector reports before submitting to the lender.
- Change orders: document, price and approve every change before work starts.
- Retainage: track amounts held back and when they are due.
- Cost to complete: update the forecast monthly so surprises appear early.
Warning signs
- Contingency used up early in the project
- Draws delayed by missing documentation
- Change orders approved verbally
- Committed costs not tracked against the budget
- Interest reserve running low before lease-up
How Capstone CFO helps
- Build and maintain detailed development budgets
- Manage draw packages and lender reporting
- Track commitments, change orders and cost to complete
- Forecast cash needs through construction and lease-up
- Report project status clearly to investors and partners
Frequently asked questions
How much contingency should a project carry?
It depends on project type, stage and risk. Lenders often have requirements; set it realistically for the project.
What is cost to complete?
The remaining cost to finish the project, based on committed and expected costs. Lenders use it to confirm the loan stays in balance.
Who should approve change orders?
A defined process with clear authority levels, documented before work begins.
Want tighter control over your development projects? See how we support real estate companies or book a call with our CFO team.