By: Kelly Berardi, J.D, LL.M. & Richard Hirschen, CPA, CGMA
Gray, Gray & Gray, LLP
What You’ll Learn
- Why project feasibility has become the defining challenge for many Greater Boston developers
- How rising costs and tighter financing conditions affect project economics
- The financial warning signs that developers should monitor closely
- How proactive accounting and advisory services can improve project outcomes
- Ways developers can preserve margins, strengthen lender confidence, and improve returns
Greater Boston’s commercial real estate market is inherently cyclical. Developers have managed recessions, construction booms, labor shortages, and shifting tenant preferences. However, many professionals now face a unique challenge: projects that appear viable on paper often struggle to remain financially feasible from inception to completion.
Interest rates are significantly higher than in the previous decade. Construction costs have increased sharply. Lenders are more cautious, and investors expect stronger returns. In some sectors, ongoing uncertainty about future demand further complicates underwriting. As a result, many developers find that the primary challenge is not identifying opportunities, but ensuring those opportunities remain economically viable.
Table of Contents
The New Reality: Thin Margins and Limited Room for Error
Commercial real estate development has always relied on careful financial analysis. Today’s market offers even less margin for error.
A project that seemed financially attractive two or three years ago may no longer deliver acceptable returns. Construction budgets, financing, and carrying costs have all increased, while insurance premiums continue to rise. Meanwhile, tenants and investors remain highly price-sensitive.
In this environment, even minor economic changes can have significant consequences. A 5% construction cost overrun, a six-month lease-up delay, or a modest rise in borrowing costs can reduce returns below investor expectations or raise lender concerns. The challenge is not just controlling costs, but identifying financial issues early enough to take corrective action.
Why Good Accounting Has Become a Distinct Advantage
While accounting is often viewed as a back-office function focused on financial statements and tax compliance, it is now essential for developers seeking to protect project profitability.
Effective accounting and advisory teams help developers address critical questions before issues arise:
- Is the project still meeting return targets?
- Are construction costs tracking to budget?
- Is cash flow sufficient to maintain ongoing operations?
- Will financing covenants remain intact?
- Are there opportunities to improve after-tax returns?
- How will transforming market conditions affect project economics?
Timely, accurate financial information enables management to make better decisions and respond quickly to changing conditions.
The Importance of Real-Time Cost Visibility
A major threat to project profitability is identifying cost overruns too late.
Construction projects involve numerous transactions, change orders, invoices, and budget adjustments. Without accurate job-cost accounting and ongoing variance analysis, developers may not recognize the financial impact of these changes until significant losses occur.
A strong accounting team establishes systems that provide ongoing visibility into:
- Actual versus budgeted costs
- Pending change orders
- Committed but unpaid expenses
- Cash requirements
- Cost trends across project phases
This insight allows developers to identify issues before they become major financial obstacles.
Better Forecasting Leads to Better Decisions
Forecasting is increasingly important due to ongoing market uncertainty.
Developers must now evaluate multiple scenarios instead of relying on a single set of assumptions. Lease rates, construction schedules, interest rates, and capital markets can all change unexpectedly.
Sophisticated financial projection helps developers evaluate questions such as:
- What happens if lease-up takes six months longer than expected?
- How would lower rental rates affect project returns?
- What if construction costs increase further?
- How much additional capital may be required under various scenarios?
Modeling various outcomes gives developers a clearer understanding of risk and enables them to create more effective contingency plans.
Maximizing Tax Incentives and Financial Opportunities
Many developers focus on construction costs and financing terms but often overlook opportunities to enhance project economics through strategic tax planning.
An experienced accounting and advisory team can help identify programs and incentives that improve returns, including:
- Cost segregation studies
- Energy-efficiency incentives
- Historic rehabilitation tax credits
- Low-income housing tax credits
- State and local development incentives
- Entity structure optimization
While no tax strategy can turn an unviable project into a successful one, prudent planning can significantly improve after-tax cash flow and investor returns.
Building Confidence with Lenders and Investors
Access to capital remains one of the most important determinants of project success.
Lenders and investors seek assurance that developers understand their finances and maintain strong controls. Accurate reporting, timely forecasts, and clear communication help build this confidence.
A capable accounting team supports financing efforts by providing:
- Dependable financial reporting
- Construction draw documentation
- Cash-flow projections
- Covenant compliance monitoring
- Investor reporting packages
- Capital planning support
Developers who provide well-organized financial information often maintain stronger relationships with lenders, attract investment, and secure future financing more easily.
Early Warning Systems Matter More Than Ever
An accounting team’s greatest value may be its role as an early warning system. The objective is not just to report past results, but to identify trends that could affect future profitability.
Strong financial oversight can reveal:
- Margin erosion
- Cash-flow pressures
- Budget variances
- Financing risks
- Tax-planning opportunities
- Operational weaknesses
The sooner these issues are identified, the more options management has to address them. In today’s market, this ability can determine whether a project meets its objectives or falls short.
Financial Discipline Is Becoming a Competitive Advantage
Greater Boston’s commercial real estate market still offers significant opportunities. Housing demand is strong, infrastructure investments persist, and select sectors continue to attract capital and development.
However, the market no longer rewards developers who rely only on instincts or favorable conditions. Success now depends on financial discipline, accurate forecasting, and proactive risk management.
A skilled accounting and advisory team cannot eliminate market uncertainty or reduce costs, but it can provide the financial visibility and strategic insight needed for informed decision-making. In a market where small economic changes can determine project outcomes, this level of financial intelligence is more valuable than ever.
Kelly Berardi, J.D, LL.M. and Richard Hirschen, CPA, CGMA are Partners in the Commercial Real Estate Practice Group at Gray, Gray & Gray, LLP, a business consulting and accounting firm that serves the commercial real estate industry. They can be reached at (781) 407-0300.
Frequently Asked Questions (FAQ)
Many lenders have adopted more conservative underwriting standards due to higher interest rates, economic uncertainty, and concerns about certain property sectors. As a result, developers routinely face more rigorous lending requirements, lower loan-to-value ratios, and increased scrutiny of project assumptions.
The right accounting and advisory team can enhance profitability through better budgeting, forecasting, job-cost tracking, tax planning, cash flow management, and by identifying available incentives and credits.
Developers should routinely monitor project budgets, job-cost reports, cash-flow forecasts, construction draw schedules, variance analyses, debt covenant reports, and investor reporting packages.
Ideally, accounting advisors should be engaged during project planning and underwriting, not after construction begins. Early involvement leads to better forecasting, stronger controls, and improved decision-making throughout the project lifecycle.
Yes. Investors generally prefer projects supported by precise financial reporting, credible forecasts, and strong internal controls. Professional accounting oversight can improve disclosure and increase investor confidence.
This article is intended for informational purposes and does not constitute legal, financial, or tax advice specific to your situation. Consult with accredited professionals before making decisions based on this content.