To my understanding, one wants at least a 100-200 basis point spread depending on the market between first-year ROC and market caps when contemplating a new development. What does it mean if I am able to get to a 20%+ IRR on a five-year hold if the development spread is only between 20-100 basis points?
Trending Content
| +65 | Are we suckers? | 34 | 2h | |
| +33 | Are Development and Acquisition Roles AI proof / future proof? | 8 | 2d | |
| +28 | Acquisitions Comp - Fee and Promote splits? | 13 | 2d | |
| +24 | What exactly is Pref equity ? | 12 | 2d | |
| +23 | Looking for JV Equity Partner - Dev Deal SE US | 7 | 1d | |
| +22 | All my folks in the office space market….thoughts?? | 13 | 5h | |
| +21 | How Granular are your Real Estate Models and Analyses? | 8 | 17h | |
| +20 | Most prestigious office location in NYC? | 14 | 1d | |
| +19 | Commercial Real Estate Modeling | 7 | 1d | |
| +17 | UW Madison - REMBA’s hired by Top REPE Firms? | 11 | 1d |
Career Resources
I am currently working on a deal where a similar dynamic is happening. For us, the difference was in the growth assumptions. Aggressive rent growth in the first few years of the proforma and minimal cap rate expansion assumptions.
Bingo
agreed on the above comment. in the equation you mentioned, breaking it down...the development cost is really only the fixed variable. Other driving factors would be the NOI and cap rate...again assuming the cost is fixed your NOI is really the driving factor for identifying that dynamic. Thus, any changes in your growth rates (as mentioned above) depending on your expense ratio can start to have a real impact. Basically, break down your proforma assumptions that drive your NOI and likely there is a variable there that is causing this outcome.
Whats your market cap rate and leverage assumptions?
What is your return on cost in the terminal year? My guess is much larger than 20-100 bps
It probably means a high degree of positive leverage is being utilized and revenue growth is high throughout the hol... Assuming this is project XIRR? What is total LTC including all debt?
75% LTC, 5 basis point cap expansion per year, and 3% matched rent and expense growth.
Sunt nemo consequatur modi deserunt voluptatum minima eos cumque. Ex repudiandae vel et corrupti a ratione. Error porro ut ratione ea ipsam totam. Sed similique necessitatibus omnis et aut. Non nobis ea dicta hic excepturi maxime enim. Aut quo aut in inventore quo.
Reiciendis autem consequuntur fugit consequuntur qui sit. Ipsam repellendus ipsa cum facilis unde modi. Error non cupiditate consequuntur maiores rerum. In consequuntur numquam repellat natus. Illo ea tempora est eum ut. Non odio est voluptatum repellat ad explicabo ipsa voluptatem.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...