What development spread do PBSA schemes need?
A developer needs yield on cost comfortably above the yield at which the finished scheme will sell, to pay for construction, lettings and planning risk. When exit yields move out, as they did when interest rates rose, that spread narrows and fewer schemes work. Lenders and forward funders test the spread on every appraisal. See PBSA yields.
Questions
What is a good yield on cost for PBSA?
It depends on the exit yield for the location and covenant. The useful measure is the spread: the yield on cost minus the exit yield, expressed in basis points.
Written and reviewed by Matt Lenzie, Founder and principal. Last reviewed .