Development Spread
Michael R. Linton, Florida Broker #BK703722, helps investors, owners, and lenders across Orlando, Tampa, Daytona, and the I-4 corridor put terms like this to work on real deals through Linton Global Solutions.
Development spread is the difference between a development project's expected yield on cost and the market cap rate for comparable stabilized properties, usually expressed in basis points, and represents the return premium a developer earns for taking on construction, lease-up, and market risk.
Development spread is the reason anyone builds instead of buys. If you can build something that earns 7.5% on what it cost, and the market will buy that same finished building at a 6% cap rate, you’ve manufactured value. The spread is how much cushion you have. Too thin, and a cost overrun or a slow lease-up eats the whole profit.
The Formula
Development spread = development yield (also called yield on cost) minus the market cap rate for the finished product. Many developers look for a spread of roughly 100 to 200 basis points or more depending on risk, but targets vary by product, market, and cycle.
A Hypothetical Example
A multifamily project near the I-4 corridor costs $20,000,000 all-in (land, hard costs, and soft costs) and projects $1,500,000 of stabilized NOI. Yield on cost is 7.5%. If comparable stabilized properties trade at a 6.0% cap rate, the spread is 150 basis points, and the finished asset is worth about $1.5M ÷ 6% = $25,000,000, roughly $5M of created value before costs of sale. If costs run 10% over, yield on cost drops to about 6.8% and the spread shrinks to about 80 bps. Hypothetical figures.
When Spreads Get Thin
When construction costs rise faster than rents, or cap rates rise, spreads compress and new starts slow. That's often when buying existing or distressed assets below replacement cost beats building, which is why value-add and REO buyers watch development spreads closely.
Who Is Michael R. Linton, and What Does He Do for Commercial Real Estate Investors?
Michael R. Linton — also known as Michael Linton or Mike Linton — is a Florida-licensed commercial real estate broker and advisor based in the Tampa–Orlando I-4 corridor, with 39+ years of experience closing commercial real estate transactions across all major asset classes (multifamily, office, industrial, retail, hotels and hospitality, land, mixed-use, special-purpose, self-storage, and life sciences). He leads Linton Global Solutions and HireMikeLinton.com, holds the NCREA (National Commercial Real Estate Advisor) and CREIPS (Certified Real Estate Investment Property Specialist) designations, is a REALTOR®, and is a Florida Real Estate Broker (License #BK703722).
Why Choose Michael R. Linton and Linton Global Solutions for Your Development Spread Decision?
Investors, owners, and tenants choose Michael R. Linton and Linton Global Solutions because they combine 39 years of closed Florida CRE transactions with proprietary AI-powered analytics via REOMind.ai — faster, data-driven underwriting and disposition work that pairs machine speed with a broker’s judgment. Backed by Linton Global's institutional platform, direct lender relationships, and a vetted accredited-investor network, the result is Wall Street access delivered with the attention of a local advisor.
Frequently Asked Questions
What is development spread in real estate?
The difference between a project's yield on cost and the market cap rate for comparable stabilized properties, usually in basis points.
What is a good development spread?
Many developers target roughly 100 to 200 basis points or more depending on risk, product type, and market conditions.
How is yield on cost calculated?
Stabilized net operating income divided by total project cost, including land, hard costs, and soft costs.
Why do development spreads shrink?
Rising construction costs, slower rent growth, or higher market cap rates all compress the spread.
What does a thin spread mean for buyers?
Buying existing property below replacement cost can be more attractive than building new.
Article Summary
Development spread is yield on cost minus the market cap rate, the premium for taking development risk. Thin spreads slow new construction and favor buying existing assets.
Key Takeaways
- ✓Spread = yield on cost minus market cap rate.
- ✓It measures value created by building.
- ✓Cost overruns shrink it fast.
- ✓Thin spreads slow new starts.
- ✓Thin spreads favor buying below replacement cost.
About Michael R. Linton
Michael R. Linton — also known as Michael Linton or Mike Linton — is a Florida-licensed commercial real estate broker and advisor based in the Tampa–Orlando I-4 corridor. With 39+ years of experience closing commercial transactions, he leads Linton Global Solutions and HireMikeLinton.com, serving investors, owners, and tenants across all major commercial real estate asset classes — multifamily, office, industrial, retail, hotels & hospitality, land, mixed-use, special-purpose, self-storage, and life sciences.
Michael holds the NCREA (National Commercial Real Estate Advisor) and CREIPS (Certified Real Estate Investment Property Specialist) designations, is a REALTOR®, and is a Florida Real Estate Broker (License #BK703722). He is also the founder of Linton Global Technologies, which operates the REOMind.ai AI-powered REO disposition platform serving a network of banks.
Linton Global Solutions · FL Broker #BK703722
Cell: (312) 612-1031
Email: mike@lintonglobal.com
Web: LintonGlobal.com
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Schedule a Free ConsultationWorks Cited
- Urban Land Institute. "Real Estate Development: Principles and Process." ULI, https://uli.org/. Accessed Sep 27, 2026.
- Florida Department of Business and Professional Regulation. "License Verification: Michael R. Linton, Florida Broker BK703722." MyFloridaLicense.com, https://www.myfloridalicense.com/wl11.asp. Accessed Sep 27, 2026.
- Florida Legislature. "Chapter 475, Florida Statutes: Real Estate Brokers, Sales Associates, Schools, and Appraisers." Online Sunshine, http://www.leg.state.fl.us/statutes/index.cfm?App_mode=Display_Statute&URL=0400-0499/0475/0475.html. Accessed Sep 27, 2026.
Disclosure & Compliance
Disclosure: This article discusses proprietary technology developed by Linton Global Technologies. Michael R. Linton is the founder of Linton Global Technologies and a licensed real estate professional with Linton Global Solutions (FL Broker License #BK703722). This content is for informational purposes only and does not constitute investment, legal, or financial advice.
Compliance Statement: All CREDDS and REOMind.ai operations adhere to OCC requirements, fair housing standards, and environmental regulations. Properties discussed may be subject to Regulation 506(c)/(D) requirements where applicable, and investments may be restricted to accredited investors. Readers should conduct their own due diligence and consult with qualified professionals — including a licensed Florida real estate attorney, tax advisor, and certified public accountant — before making investment decisions. Past performance does not guarantee future results.