Casa Rusca / Tools / First Pencil
First Pencil
A feasibility screen for adaptive-reuse and hotel projects. Set the numbers; it answers the only first question that matters — does it pencil — and tells you what a lender and an LP would say before you hear it in a meeting.
Free · Runs entirely in your browser · Nothing you enter leaves this page
Casa Rusca — First Pencil
Feasibility screen · casarusca.com/tools/feasibility ·
The deal
Downside case, applied automatically: 10% cost overrun · six months late · NOI 7.5% below plan · exit cap 50 bps wider · debt 75 bps more expensive.
Held constant: closing costs 1.5% of price · FF&E reserve 4% of revenue · selling costs 2% at exit · construction interest on an average 60% draw. Exit values the following year's NOI at the cap rate. Equity funds at close; operations begin when construction ends.
The link in your address bar now encodes this exact scenario — copy it to share the screen with a partner.
What would have to change
Assumptions worth a second look
This is a screen, not an appraisal, an offer, or investment advice. It exists to make the first conversation honest — every number in it should be replaced by your own underwriting before any decision. Built by Nicolo Rusconi from fifteen years of hearing what credit committees actually say.
How to read the numbers
The screen judges two things separately, because they fail for different reasons and are fixed in different ways. Asset economics asks whether the building creates value and returns enough for the risk taken. Capital structure asks whether the loan as proposed can actually be financed. The overall verdict is the weaker of the two — but a sound building carrying too much debt is reported as a financing problem, not a bad building.
Yield on cost
Stabilized net operating income divided by total project cost — what the building earns on every dollar you put into it, once it is running normally. It is the single most useful number in development, because unlike a cap rate it does not depend on anyone else's opinion of the asset. A development that cannot beat the cap rate it will eventually sell at has not created anything.
Spread to exit cap
Yield on cost minus the cap rate you expect at sale, in basis points — your compensation for taking construction, entitlement and lease-up risk instead of buying a finished building. The conventional target for a renovation is 150–250 bps; the screen treats 150–199 as sound, 200–299 as room, and 300+ as exceptional. Anything under 150 is thin, not normal, and under zero the deal is more expensive than buying the finished asset.
Development margin measures the same value creation from the other side — roughly the spread divided by the exit cap rate. Both are shown because both are read in practice, but the screen counts them once, as a single value-creation pillar, rather than treating them as two independent confirmations.
Development margin
Value at the exit cap, less selling costs, less total project cost — as a percentage of cost. It answers "what did the risk earn." 15–25% is the usual band for adaptive reuse. Below 10% there is no room for the structural surprise that adaptive reuse reliably produces, and which you only discover after you own the building.
DSCR — debt service coverage ratio
Net operating income divided by annual debt service — the first ratio a credit committee looks at, and the one that sizes your loan. Conventional hotel lending is currently seeking around 1.40x. The screen reads 1.35–1.49 as financeable on ordinary terms, 1.50–1.74 as clearing without conversation, and below 1.35 as financeable only with structure — interest reserves, guarantees, or a smaller loan than you modelled.
Debt yield
Net operating income divided by the loan amount — the lender's return if they took the keys tomorrow. Because it ignores both interest rates and cap rates it survives a repricing, which is why lenders trust it most. Conventional hotel debt is priced against roughly 12%. Between 10% and 12% a loan is financeable but capital-source dependent; under 10% lenders shrink it regardless of what loan-to-cost says.
Loan to cost
Banks financing hotel construction generally lend to around 65% of cost, with occasional executions near 70%. Above that you are in private credit, and should price the debt accordingly rather than assume bank terms. Leverage is scored as its own credit test here, because a deal can clear coverage and still be over-levered for the lender you are counting on.
Levered IRR
The annualised return on the equity, accounting for when every dollar moves — equity out at close, nothing during construction, cash flow once the building operates, and the sale at the end. Hurdles are not universal, so the screen sets them by strategy: a stabilized acquisition is judged against a lower bar than a value-add renovation, and ground-up development against a bar roughly five points higher again. Hurdles also scale down with leverage, since these are levered-equity returns and an unlevered deal should not be penalised for prudence. Time is the hidden variable: a long build pushes every dollar further away and the IRR falls even though the profit does not.
Equity multiple
Total cash returned divided by cash invested. IRR rewards speed; the multiple rewards magnitude, and the two disagree often enough that serious investors read both. The screen sets the multiple hurdle from the hold period, so a short hold cannot manufacture a flattering IRR on a thin multiple — and scores the return pillar on whichever of the two is weaker.
Why the assumptions matter more than the answer
Every number above is downstream of ADR, occupancy and operating margin. Move stabilized occupancy four points and the whole picture changes. Flags are therefore graded, and act as ceilings rather than penalties: one or two material assumptions cap the verdict at “with room”, three or more cap it at “normal risk”, and a single critical assumption — one no market reliably delivers — caps it at “barely” until it is resolved. Minor flags are disclosed and nothing more.
A home run additionally has to survive a downside case: a 10% cost overrun, six months late, NOI 7.5% below plan, the exit cap 50 bps wider and debt 75 bps more expensive. A deal that only works if nothing goes wrong is not a home run.
Contact
Screening something real?
nico@casarusca.comIf the screen says no and you think it is wrong — or it says yes and you want it to survive diligence — tell me what the building is.