ROI during Pre-development and Construction Phase

[Scott Ellis]

Hi there.  I'm purchasing a 4-unit property to redevelop with a bridge loan for pre-development and then will be getting a construction loan after we're permitted by the city to redevelop a new 10-unit in it's place.

I'm pitching a partner to put up 60% of our down payment for the construction loan. He would not be an investor, but an equity partner in the LLC. I'm putting up 40% and acting as the deal sponsor/asset manager.

I've put together our financial analysis for the stabilized property, but I'm curious if any of you could point me toward resources to learn about the financial analysis during the pre-dev and construction phase. 

Our risk is highest during predevelopment, lowers during construction, and is lowest once the property's stabilized.  Yet, with no income during the year of construction, I'm struggling to factor that into our 5 year projections.  I'm personally just planning to have that dead equity until the property is complete and rented, but I'm struggling how developers typically handle that.  

I don't want to pitch a partner to join the deal during the riskiest part and then begin earning returns a year down the road once the risk comes down.  Yet, I also don't want to necessarily pay out X% returns for his investment while my equity is just sitting there.

Thanks a lot for any insight!  This is my first development project and am finding it's a steep learning curve.