Yield Rate in Real Estate
Yield rate: return accounting for income + value change over time. Considers: all income, income changes, reversion, and time value. Equivalent to IRR. Used as DCF discount rate. Determination: market extraction, investor surveys (PwC/ULI, RERC, CBRE), band of investment, and built-up method (risk-free + premiums). FL rates: multifamily 7-9%, office 8-10%, retail 9-11%, industrial 7-9%, hotel 10-14%, land 12-18%. FL risk: hurricane +50-100 bps, insurance +25-75 bps, growth -25-50 bps. Higher than cap rate (includes appreciation).
What It Is
- Income + value change
- Equivalent to IRR
- DCF discount rate
Determination
- Market extraction, surveys
- Band of investment
- Built-up method
FL Rates
- MF: 7-9%, Hotel: 10-14%
- Hurricane: +50-100 bps
- Higher than cap rate
Related Terms
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Reviewed by the attorneys at Barnes Walker, Goethe, Shea & Robinson, PLLC