Method and limits — read before this reaches an investment committee

GFA is plot area × FAR; net lettable area is GFA × net:gross. Total development cost is land plus build plus soft costs. Capital is spread evenly across the build period, letting income from the year after practical completion. NOI is gross rent less vacancy less opex. Exit value is the final-year NOI capitalised at the exit cap rate, taken at the end of the hold. NPV discounts the net flows at the entered rate; IRR is solved by bisection on the same series.

This is a screening model, and it is deliberately simple in ways that matter. There is no debt, so the IRR shown is an unlevered project return — a geared equity IRR on the same scheme will be materially different and is what an investor will actually ask for. There is no tax, no transaction or disposal cost, no letting void beyond the flat vacancy assumption, no rent-free or incentive period, no capital expenditure reserve during the hold, and no inflation on operating costs. Each of those pushes the return down.

The exit value typically drives more than half the IRR, and it rests entirely on the cap rate you type in. A 50 basis point move in the exit yield usually swings the IRR by more than a full point, so test it both ways before relying on the result. Nothing here is investment advice or a valuation; a formal appraisal needs a valuer and a full discounted cash flow with debt, tax and sensitivity analysis.