Had this asked in an interview.
1.) Wouldn't you want your ROC to be lower since as potential stabilized NOI grows, your ROC will fall, right?
2.) How do you use ROC in your analysis? Are you trying to look for a spread between these numbers as they represent future growth in potential NOI?
Thanks for all of the help!
| +43 | What Is Your Backup Plan? | 20 | 14h |
| +39 | Where are free agents signing? | 21 | 20h |
| +36 | AvalonBay Equity Residential Merger discussion | 16 | 18h |
| +34 | Future of Real Estate | 9 | 23h |
| +31 | Laughable Job Posting | 12 | 16h |
| +16 | Extremely Slow Ramp Up | 1 | 2d |
| +14 | In RE, what is the ONE software tool you couldn’t survive without? | 5 | 2d |
| +10 | Dynex | 5 | 1d |
| +9 | Development Budget: use RENTABLE or GROSS BUILDABLE sf? | 3 | 3d |
| +9 | Portfolio Management strategy/transaction exposure on the analyst/associate level? | 1 | 1d |
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.
Great questions! Let's break it down:
1.) The relationship between Return on Cost (ROC) and Capitalization Rate (Cap Rate) can be a bit tricky. Generally, you'd want your ROC to be higher than your initial Cap Rate. This is because ROC is essentially your yield on cost - it's the net operating income (NOI) you expect to achieve on the total cost of the project. If your ROC is higher than your Cap Rate, it means you're achieving a higher return on your investment than what the market is generally providing (as represented by the Cap Rate). If your ROC falls below the Cap Rate, it could indicate that your project is not performing as well as the market average.
2.) In terms of using ROC in your analysis, it's indeed a useful tool to gauge the potential profitability of a project. A spread between ROC and Cap Rate can indeed represent future growth in potential NOI. A larger spread could indicate a higher potential for profit. However, it's also important to consider other factors such as the risk associated with the project, market conditions, and your overall investment strategy.
Remember, every investment opportunity is unique and should be evaluated on its own merits. These are just general guidelines and may not apply in every situation. Always do your due diligence and consider seeking advice from a financial advisor or experienced professional.
Op here. Thank you for the insight, extremely helpful.
Hah, that is a bot
Damn, I'm a f**** idiot. Robots 1 Me 0
Rerum occaecati numquam doloremque ut ut et provident quia. Soluta in magnam vitae esse eaque ut qui. Quo vero dolores at aut dolorum. Earum natus illo eum maxime debitis doloremque quae.
Repellendus harum corporis accusantium quae in suscipit in. Sint dignissimos aspernatur saepe sapiente sunt consequatur ducimus consequuntur. Sint et magnam a aut. Laboriosam culpa dolores sint ut repellat ad. Sit vel eos deleniti placeat ex et.
Eligendi nam repudiandae enim magni est autem et. Blanditiis deleniti sit consequuntur officia modi rerum animi.
Expedita voluptatem reiciendis iusto earum ea ut. Id ipsam facere vel harum vero. Unde eos dolores quis tempora. Enim alias deleniti tempora. Enim sunt quia aperiam veniam corrupti veritatis est.
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...