What metrics do you use to compare large-scale redevelopment projects for long-term holding period i.e. no windfall? To make it more complicated, every project is in a different phase - some can be in early market research while some are already 25% complete.
A few metrics off the top of my head:
- IRR - IMO it doesn't work since there are no sale proceeds once the project is completed
- Cash on Cash (stabilized rent over total project cost) the best metrics? Or CAGR of stabilized NOI against cost of capital?
Work at a long term hold family owned development shop. Yield on cost (NOI/Total Project Cost) is our go to metric for long term hold project. We look for yield on cost to be baseline 150 bps above prevailing cap rates.
Yield on Cost is the best metric for a build and hold development. To add to that, 150 bps is a rule of thumb and really boils down to exit cap being ~25% lower than your YoC
Thanks guys! This was really helpful - Also reminded me I mixed up COC with YOC.
I usually look at how much Weighted Avg Profit, or WAP, the opportunity will generate. Usually combined with COC.
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