Why cashflow timing can kill a development deal

Short answer. A project can be profitable on paper and still die in cashflow. The killers are program slippage, settlement waterfall slippage, and interest cost on debt that stays out longer than planned. Peak debt is the line you do not want to underestimate.

Why cashflow, not profit, is the operative metric

Profit on cost tells you whether the project is worth doing. Cashflow tells you whether you can do it. Senior lenders size against peak debt, not against profit. Equity partners look at IRR and distribution timing, not headline margin.

The three ways cashflow timing kills deals

1. Program slippage

Construction slips three months. Interest carries for three extra months on a peak debt balance. Marketing carries for three extra months. Settlement waterfall pushes back by three months on the equity side. A 3-month slip on a 30-month program is a ten percent program extension and a non-trivial hit to IRR.

2. Settlement waterfall slippage

A typical apartment scheme settles 40 / 30 / 20 / 10 across the first four months post practical completion. If finance is tight and buyers delay (and they do, in soft markets), the senior loan stays out longer. Each month of delay adds interest cost and pushes equity return out.

3. Equity drawdown timing

Equity drawn earlier than planned compresses IRR. Equity locked up longer than planned does the same thing. The standard assumption (equity first, then debt, then settlements pay it back) has three timing variables hidden inside it.

What a monthly cashflow actually shows you

• Peak debt month. The single largest cumulative debt balance, read off the monthly line.
• Peak equity month. The single largest cumulative equity balance.
• First settlement month. The point at which the debt balance starts to come down.
• Distribution months. When equity actually comes back, and how that compares to the equity hurdle period.

Modelling timing risk explicitly

Every monthly cashflow should be re-run under at least two timing scenarios beyond the base. A 3-month program delay. A 2-month settlement delay. Sometimes both together. Report peak debt, peak equity and IRR for each.

Practical takeaways

• Always run the cashflow monthly. Annual hides the risk.
• Peak debt is the month, not the year. Read it off the monthly cumulative line.
• Run at least one timing scenario in addition to the base.
• Senior lenders size against peak debt. Equity hurts when distribution timing slips.