In one sentence
The difference between a project's yield on cost and the market cap rate, measuring the value creation in a development.
The longer version
Development spread, sometimes called the developer's margin, is yield on cost minus the exit cap rate. A wider spread means the completed project is worth meaningfully more than it cost, the reward for development risk.
Lenders use the spread to test whether a construction or value-add business plan has enough cushion to absorb cost overruns and market shifts.
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