Industrial Logistics Development: Yield-on-Cost (YOC), Clear Height Premiums & Merchant Developer Spreads
A commercial development analysis of modern industrial logistics facilities, Yield-on-Cost (YOC) hurdles, 36-foot clear heights, and development spreads.
Industrial Development Yield Calculator
Evaluate land cost, construction budget, clear height rent premiums, and developer spread
Empirical Analysis & Findings
## Economics of Modern Industrial Logistics Development
E-commerce supply chain demands have transformed industrial warehouse specifications, making clear ceiling height and trailer parking ratios primary drivers of lease rates.
### 1. Yield on Cost (YOC) vs. Market Exit Cap Rate
$$\text{Yield on Cost (YOC)} = \frac{\text{Stabilized Net Operating Income}}{\text{Total Project Budget}}$$
$$\text{Development Spread (bps)} = (\text{YOC} - \text{Market Exit Cap Rate}) \times 10,000$$
If development cost is $50,000,000 and stabilized NOI is $3,750,000:
- $\text{YOC} = \$3,750,000 / \$50,000,000 = 7.50\%$.
- Exit Cap Rate: 5.75%.
- **Development Profit Spread: 175 bps ($15,217,000 profit upon sale at $65.2M valuation).**
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Frequently Asked Questions
What is Yield on Cost (YOC) in commercial real estate development?
Yield on Cost equals the project's stabilized Net Operating Income (NOI) divided by the total development cost (land, hard costs, soft costs, financing).
What minimum development spread do merchant developers require to justify construction risk?
Institutional developers require a minimum 150 to 200 basis point spread between their Yield on Cost (e.g. 7.25%) and market exit capitalization rates (e.g. 5.50%).
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