Yield on Cost Calculator
Yield on cost = stabilized NOI ÷ total project cost
Compare it to the market cap rate for your development spread.
TL;DR Yield on cost = stabilized NOI ÷ total project cost $1.2M of stabilized NOI on $13M of total cost = 9.23% yield on cost; against a 7.5% market cap rate that is a 173 bps development spread, and a $16M stabilized value. Developers typically target 150–250 bps of spread over market cap rates as of Q3 2026.
Yield on cost
9.23%
Development spread
173 bps
The formula
Yield on cost = stabilized NOI ÷ total cost × 100 · Spread = yield on cost − market cap rate
Worked example
A ground-up development is projected to earn $1,200,000 of stabilized NOI on $13,000,000 of total project cost: yield on cost = $1,200,000 ÷ $13,000,000 = 9.23%. Against a 7.5% market cap rate, the development spread = 9.23% − 7.5% = 173 bps. Capitalizing the same NOI at the 7.5% market cap rate implies a stabilized value of $1,200,000 ÷ 0.075 = $16,000,000, $3,000,000 above the $13,000,000 cost.
Typical development spreads (indicative, as of Q3 2026)
| Strategy | Target spread over cap rate |
|---|---|
| Light renovation / value-add | 100 – 150 bps |
| Select-service ground-up | 150 – 250 bps |
| Full-service ground-up | 200 – 300 bps |
Ranges are indicative national figures for stabilized assets and vary by market, brand, and condition. For preliminary planning only; not an offer of credit.
Frequently asked questions
What is yield on cost?
Yield on cost is stabilized net operating income ÷ total project cost, expressed as a percentage. A development expected to produce $1,200,000 of stabilized NOI on $13,000,000 of total cost has a yield on cost of $1,200,000 ÷ $13,000,000 = 9.23%. It measures the return a project earns on every dollar invested to build or renovate it.
What is a good development spread?
As of Q3 2026, developers typically target 150 to 250 basis points of spread over the market cap rate, which is the gap between yield on cost and the rate at which the finished asset would trade. A 9.23% yield on cost against a 7.5% market cap rate is a 173 bps spread — inside the typical target range and enough to compensate for construction and lease-up risk.
How is yield on cost different from cap rate?
Cap rate values an existing income stream: NOI ÷ purchase price. Yield on cost measures a development or renovation: stabilized NOI ÷ total project cost, including land, hard costs, soft costs, and financing. Yield on cost should sit comfortably above the market cap rate — the difference is the development spread that justifies the build.
How do you estimate stabilized value from yield on cost?
Divide stabilized NOI by the market cap rate: value = NOI ÷ (cap rate ÷ 100). At $1,200,000 of stabilized NOI and a 7.5% market cap rate, the stabilized value is $1,200,000 ÷ 0.075 = $16,000,000. Comparing that to the $13,000,000 total cost shows the value created by developing rather than buying.