Yield on Cost

Untrended vs. Trended Yield on Cost

• Untrended YoC: stabilized NOI at today's rents (no rent growth) ÷ total cost — conservative, lender-preferred metric
• Trended YoC: stabilized NOI at projected stabilization-year rents (with 2–4% annual growth) ÷ total cost — promotional, sponsor-preferred
• Florida lender preference: nearly all lenders underwrite to untrended YoC — protects against rent growth shortfall
• Equity partner negotiation: sponsors often present trended YoC; sophisticated LPs reverse to untrended for risk analysis
• Typical gap: trended YoC typically 30–60 bps above untrended at 3% annual rent growth assumption

Florida YoC Benchmarks by Asset Class

• Multifamily Class A garden development: 6.25%–7.25% untrended YoC targeted; 6.50–7.00% currently challenging given construction cost & rate environment
• Multifamily mid/high-rise development: 6.00%–6.75% untrended YoC; tighter spreads
• Industrial Class A bulk development: 6.50%–7.50% untrended YoC; strong demand supports tighter cap spreads
• Retail anchored development: 7.00%–8.00% untrended YoC; pre-leasing critical
• Hotel development: 8.00%–11.00% untrended YoC; reflects operating complexity and capex intensity
• Self-storage development: 7.00%–8.50% untrended YoC
• Medical office development (pre-leased): 6.50%–7.50% untrended YoC
• Major value-add YoC (post-renovation): targeted at 200+ bps above acquisition cap rate

Development Spread and Profit Margin

The spread between YoC and exit market cap rate drives development profit:

• YoC − Exit Cap = Development Spread: e.g., 7.00% YoC − 5.50% exit cap = 150 bps spread
• Development Margin % = (NOI / Exit Cap − Total Cost) / Total Cost: measures profit relative to cost basis
• Florida current targets: 100–200+ bps spread; institutional development equity often demands 150 bps+ minimum
• Spread compression risk: Florida construction cost escalation + lender LTC compression + rate environment can erode YoC during build; deals get less profitable as construction proceeds
• Florida-specific spread protection: realistic insurance load underwriting, post-sale tax modeling, and Florida-specific construction cost contingency

What is yield on cost in CRE development?

Yield on Cost (YoC) is stabilized NOI divided by total project cost — the return metric used to evaluate ground-up development and major value-add deals. A development with $2,800,000 stabilized NOI on $40,000,000 total cost has 7.0% YoC. The spread between YoC and the exit (stabilized market) cap rate drives development profit margin. Florida targets typically demand 100–200+ basis points of YoC-to-exit-cap spread to compensate for construction, lease-up, insurance, and rate risk.

What's a good yield on cost for Florida multifamily development?

Florida multifamily development YoC benchmarks: Class A garden 6.25%–7.25% untrended; mid/high-rise 6.00%–6.75% untrended. Achieving 6.50%+ YoC is currently challenging given construction cost and rate environment. Institutional equity typically demands 150+ bps spread between YoC and exit cap — meaning a 6.75% YoC against a 5.25% exit cap delivers 150 bps spread (acceptable); a 6.25% YoC against a 5.25% exit delivers only 100 bps (often too tight).

What is the difference between untrended and trended yield on cost?

Untrended YoC = stabilized NOI at today's rents ÷ total cost (conservative, lender-preferred). Trended YoC = stabilized NOI at projected stabilization-year rents with 2–4% annual rent growth ÷ total cost (promotional, sponsor-preferred). Florida lenders nearly always underwrite to untrended YoC. The gap between trended and untrended is typically 30–60 bps at 3% rent growth assumption over a 24-month construction-and-lease-up period.

How does development spread drive profit?

Development spread = YoC − Exit Cap. A 7.00% YoC against a 5.50% exit cap delivers 150 bps spread. Development margin % = (NOI / Exit Cap − Total Cost) / Total Cost. Example: $2.8MM NOI / 5.50% exit cap = $50.9MM exit value vs. $40MM cost = $10.9MM profit = 27% margin. Florida institutional equity typically targets 25–40% development margin at exit. Spread compression during construction (rising costs, rates, or cap rates) directly compresses margin.

Who can underwrite Florida development yield on cost?

Michael R. Linton and Linton Global Solutions underwrite YoC on every Florida development and major value-add transaction using realistic construction cost, Florida-specific insurance load, post-sale tax modeling, lease-up timeline, and exit cap rate analysis. 39 years of Florida CRE transaction experience and active capital markets and contractor relationships across Orlando, Tampa, and the I-4 corridor produce defensible YoC analysis for both bank construction lenders and institutional equity partners. Call (312) 612-1031.

Article Summary

Yield on Cost (YoC) = stabilized NOI ÷ total project cost. Key return metric for ground-up development and major value-add. Untrended YoC uses today's rents (lender-preferred); trended YoC uses stabilization-year rents (sponsor-preferred). FL benchmarks: Class A garden multifamily 6.25–7.25% untrended; mid/high-rise 6.00–6.75%; industrial bulk 6.50–7.50%; retail anchored 7.00–8.00%; hotel 8.00–11.00%; self-storage 7.00–8.50%; medical office pre-leased 6.50–7.50%. Development spread = YoC − Exit Cap; institutional equity demands 100–200+ bps spread. Development margin % = (NOI / Exit Cap − Cost) / Cost.

Key Takeaways

• ✓YoC = Stabilized NOI ÷ Total Project Cost.
• ✓Untrended YoC (today's rents) is lender-preferred; trended (future rents) is sponsor-preferred.
• ✓FL multifamily YoC target: 6.25–7.25% untrended for Class A garden.
• ✓Development spread = YoC − Exit Cap; institutional target 100–200+ bps.
• ✓Margin = (NOI / Exit Cap − Cost) / Cost; institutional target 25–40%.

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 500+ banks.

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Works Cited

1. Urban Land Institute. "ULI Development Reports." ULI, https://uli.org/. Accessed Jun 9, 2026.
2. NAIOP. "CRE Development Trends." NAIOP, https://www.naiop.org/. Accessed Jun 9, 2026.
3. CoStar Group. "Florida Development Pipeline Reports." CoStar, https://www.costar.com/. Accessed Jun 9, 2026.
4. CBRE Research. "U.S. Development Trends." CBRE, https://www.cbre.com/. Accessed Jun 9, 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.