In one sentence
A development return metric: stabilized net operating income divided by total project cost.
The longer version
Yield on cost measures the unlevered return a completed, stabilized project produces relative to what it cost to build. Developers and lenders compare it to prevailing cap rates to gauge the value being created.
The gap between yield on cost and the market cap rate is the development spread, a core measure of a project's profitability that lenders scrutinize on construction and value-add deals.
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