Real Estate Development Feasibility and Hurdle Rate Selection

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.