Development Returns (Yield-on-Cost)
How developers talk returns: yield-on-cost and spread to market cap. Simple, interview-friendly explanations.
The 20-second explanation
Say this
“Yield-on-cost is stabilized NOI divided by total project cost. I compare it to the market cap rate. The spread tells me whether I’m being compensated for development risk. If the spread is thin, the deal is fragile.”
Simple example
YOC example
Stabilized NOI$4.0mm
Total project cost$60.0mm
Yield-on-cost6.67%
Then compare to market cap (ex: 5.5%) → spread ~117 bps.
What makes a project financeable
Financeability
Lenders care about de-risking: entitlements, presales/preleasing, cost certainty, and schedule realism.
Good line to close
“If costs rise or the timeline slips, returns compress quickly—so I want contingency, buffers, and a clear path to stabilization.”