An investigation of real estate developer returns

Similarly, development valuation methods vary in the way that they account for developer return. For example, cash margins on cost, or value and rates of return, are frequently used. Sometimes finance is incorporated in the appraisal explicitly, and sometimes it is handled within the developer’s target rate of return.

This variation in practice and often opaque handling of developer returns raises important methodological questions when it comes to development appraisal. For example:

• Is there a relationship between expected cash margins (profit on cost of value, for example) and rates of return (internal rate of return, for example)?
• What is an ‘appropriate’ developer return and how does this vary depending on scheme, timing and the way that return is measured?

This project will attempt to answer these questions by reviewing relevant literature, conducting theoretical modelling, undertaking an online survey of developers, and examining published development viability appraisals and financial statements.

This research was funded by RICS Research Trust.