Development spread question

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?

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Comments (8)

Sep 30, 2019 - 10:53pm
Post hoc ergo propter hoc, what's your opinion? Comment below:

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.

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Oct 2, 2019 - 10:15am
InVinoVeritas, what's your opinion? Comment below:

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