What's a good yield on cost for multi development right now? Sourcing a couple opportunities that are in the mid 7s. Past couple of years my firm has been doing deals that are in the 9-10% range. Is this standard given the current environment? What have people been seeing?
| +65 | Hiring Analyst/Associate - Advice | 26 | 2h | |
| +40 | Current CRE Phase | 19 | 1d | |
| +36 | Laid Off - Multifamily Acquisitions Help | 8 | 6h | |
| +29 | Megafund REPE Comp | 12 | 5d | |
| +26 | Capital Formation | 9 | 2d | |
| +26 | Best Brokerages in South Florida | 18 | 1h | |
| +25 | PART 2: Increasing RE Industry's Cash Compensation, Collectively | 1 | 3d | |
| +24 | URGENT - a list of Halal/Islamic real estate funds and investment companies for potential applications | 8 | 3d | |
| +23 | NYU MSRE Program | 7 | 2d | |
| How many days a week are you expected to be in the office? | 22 | 3h |
Career Resources
Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling.
Bro are you developing in North Dakota or what lol? I've never seen a 10 ROC on multi in my entire career.
Exactly - bros a magician
10% YOC is non existent. 6.5%+ is great
Even 6.5% takes optimistic assumptions, to put it in a good light. One might also say delusion.
Good god are you building 10 unit buildings in the middle of nowhere? If you're penciling over a 6 in the current environment you have a good deal on a numbers basis.
In the Northeast, institutional sized MF projects. If we can pencil a 6.5-7% (trended) it's go time. Anyone finding deals above that are either lucky / found a needle in haystack, tied up land with an option years ago (probably with a friendly seller), or don't know what they're doing.
Southern California (San Diego)
Depending on the land and our business plan around 5% - 5.50%
Couple months back we were north of 6% on nearly every deal I touched
Around 5.5% untrended…5.75% as a stretch and getting lucky. Haven’t seen anything north of this the past couple of years.
Yoc and bps spreads can be all over the place depending on market. Use margins so it’s apples to apples.
Can you expand? Margins?
(Yoc/untrended exit cap)- 1. 100bps as a dev spread from 7% to 6% is different than 5.5% to 4.5%.
Can't say that I've ever seen a 9-10% yoc on any deal that I've worked on in my career, but we still have several deals that are penciling out to the low 7s. It depends on how you are sourcing your land and what markets you are in, but they are still out there. We have deals outside of secondary markets that are penciling to about 6.75% that we are excited about, and then we have 7.25% yoc deals in tertiary cities that feel a little shaky because of the demand factors aren't as proven in these markets. If you have 400 units in a market like Tampa/Charlotte and getting 7% then you are doing great, but if you're in Wilmington, NC or like a Rochester, NY getting a 7% yoc, then I would be less confident since the demand isn't as proven as the larger cities. Some people are not able to find good land basis and with garden being more expensive than a BFR asset type, and those people are settling for 5.75% spreads so it's all relative.
Ha so you’re looking at those Wilmington deals like everyone else........
We look at deals everywhere, including there yes. Some people want to make very speculative investments and that would be a market that hasn't quite proven the demand for large scale investment of multiple thousands of units over the next few years so we are just monitoring that market and seeing where it goes.
If you are underwriting to a 7% untrended in any market, your cost numbers or rent numbers are wildly different than what I'm hearing/seeing.
If you’re underwriting to a 7% yoc, what is your exit cap rate assumption given the rise in interest rates? And what does your spread look like?
I philosophically have a really hard time developing to a ROC that is less than my interest rate. I'm not hearing of many deals in my markets (Midwest) that are much north of a 6% ROC. Interest rates on debt might be above 7% by the end of the year. I think we are kidding ourselves that those will end up being good deals.
Yes I honestly not sure where all these people here are getting a 7% YOC. Geez, we're trying to develop in the SE and lucky to get a 5.75% YOC. Maybe we can pencil out a 50 bps to 75 bps spread on cap rates.
So many people have different ways of calculating YOC and I think that's where it gets fuzzy. Most of the 7%+ YOC's that I've seen lately have some pretty significant rent growth assumptions baked in (I am not saying all). I'm a big believer in untrended YOC and I have not seen an untrended YOC in my markets above a 6% in awhile.
Some markets in the Sunbelt can build surface parked, non-elevatored product and still get Class A rents, so that's probably the only 7%+ that you can actually get done.
Yes I am looking at untrended. Well if these people are doing a 7% YOC on trended then yes I guess thats all dependant on their UW. Although I just cant fathom doing a trended YOC.
In the Intermountain West, mainly urban infill podium projects. We have not seen anything over 5.5% untrended YoC in awhile.
Reading some of these untrended cap rates in Canada is insane, even pushing up our assumptions we're struggling to hit 4.75% untrended YoC, 50bps spread against the Cap Rate.
Are people just measuring cost as Hard Costs or everything baked in (Soft, Hard, Lease-up, Marketing, Contingency)?
Everything baked in. You guys are playing a whole different game up there.
DFW. Urban core we were seeing trades around 4.0-4.25% and are underwriting to a 5.5%+ untrended. Still feels too thin particularly with interest rates all in around a 7% on construction financing. Something has gotta give.
christ that is a risky yield. Slight increase in interest and cap rates will kill those deals
West coast. Anything below a 5% ROC is a pass, but whether it's 5.5%+ or 6.0%+, I'm still trying to figure that out. I don't think we're at the point where we need to be "leverage neutral" with our developments yet.
if many people on here are underwriting to a 5.5% UYOC, with construction financing creeping up to 7%, how are you getting this to be accretive? depending on rent growth?
Developing heavily in Bushwick and returns are about ~8.5%
Rerum ad dolor laborum eligendi illum aut. Recusandae et ipsa dolorum deserunt molestiae. Id rerum in porro voluptatem. Recusandae at necessitatibus ex odit. Quo dolore quia eaque ipsa quis accusamus.
Vero nulla est omnis neque quibusdam ea inventore in. Facere qui repellat illo repellat. Molestiae dicta nihil veritatis quis commodi ab et. Non provident est in vel ut nemo et. Exercitationem blanditiis repellendus aut sequi cum. Ipsum laboriosam provident doloremque corrupti quas recusandae similique. Ducimus doloribus officia ut nobis non.
Illum non et asperiores dolores. Fuga non facere et sapiente non natus. Adipisci nam quia ea. Voluptatum voluptatem illo quis omnis aut aliquid. Non ratione nihil quis ipsam nihil voluptates. Asperiores voluptate voluptatem nemo aut tenetur at laudantium.
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...
Quo inventore est eaque sint pariatur rerum. Explicabo fugit quaerat et excepturi qui ratione officia dolore.
Quo autem velit aspernatur architecto perspiciatis veritatis cupiditate. Id est corporis itaque qui veniam. Impedit ut sed voluptatum nihil voluptatem. Maiores optio nobis tenetur nobis. Pariatur cum at ad voluptatum dolores. Aut repudiandae labore voluptatibus ut vero quidem qui velit.
Aperiam rerum neque dolorem. Quos odit quis ad deleniti est qui sunt. Dolorem harum ut amet ipsa consequatur animi.
Qui assumenda odio impedit quos. Aliquid quis esse numquam aut quia voluptate occaecati aperiam. Dolorem aperiam rerum autem odio voluptatum.