Real Estate Development Feasibility and Hurdle Rate Selection

Matthew Moorhead*, Lynne Armitage, Martin Skitmore

*Corresponding author for this work

Research output: Contribution to journalArticleResearchpeer-review

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Abstract

The main findings are that most developers use specific ‘go/no-go’ hurdle rate mechanisms irrespective of primary real estate type, with the majority using margin on development cost (MDC) or internal rate of return (IRR); the boundaries between traditional speculative development and real estate investment through the use of securitisation methods have become blurred; many developers use both quantitative metrics, with qualitative methods and specific structural checks to manage the risks involved; and the two most frequent methods of determining site value prior to acquisition are the residual land value and DCF methods. Most place a heavy reliance on industry‐accepted heuristics and do not have a predetermined process and method for altering or adapting the chosen hurdle rates and benchmarks.
Original languageEnglish
Article number1045
Pages (from-to)1045-1067
Number of pages22
JournalBuildings
Volume14
Issue number4
DOIs
Publication statusPublished - 8 Apr 2024

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