Do you use cash-on-cash return for development deals
I am new to the development side of the business after 15 years on the CRE lending side. I work for a small investment/development firm and we syndicate our deals with a typical hold period of 5 years. 

I am currently modeling some new construction deals (multifamily) and preparing offering memorandums. 

My question is: do your investors care about cash on cash return for a development deal with some lease up period? In my view, cash on cash is only meaningful if based on stabilized cash flow since there is no cash flow during construction and limited cash flow during lease up. To me, using IRR and equity multiple is more meaningful for development projects where most of your potential return is coming from gain on sale, but our investors seem to consistently ask more about cash on cash. 

Just wanted to see how others show or explain cash on cash for development deals. 

One potential solution could be to just show the stabilized cash on cash return and maybe the average over the hold period.
[{"id": "gyw106w", "text": "We normally look at the return over a 10-year hold period. As an investor it is helpful to see the total return and then the annualized average return.", "replies": [], "depth": 1}, {"id": "gywbqw3", "text": "I agree with you. Doesn\u2019t make much sense to look at Cash on Cash especially if it\u2019s a development or redevelopment play. Maybe it could make sense to start showing it once the property is out of lease up, but it\u2019s a meaningless metric before that.", "replies": [], "depth": 1}, {"id": "gywc1fy", "text": "I\u2019ve spent ~6 years in institutional REPE and I agree with your comment. COC isn\u2019t as relevant on dev projects, more so for stabilized assets.  \n\nTo answer your question, no, investors don\u2019t (shouldn\u2019t?) care about COC for dev deals bc YOC, IRR and EM are more important here for the reasons you lay out.", "replies": [], "depth": 1}, {"id": "gywdzop", "text": "For opportunistic investments, investors care about multiple and IRR, not cash on cash.", "replies": [{"id": "gzgscun", "text": "This is the right answer but mostly because the 8-10% return they\u2019ll get for the period that youre leasing/leased up is nothing compared to the IRR you are hopefully going to be modeling out for investors. \n\nTypically the OMs I\u2019ve seen will say ok 5 year hold and years 1\u20133 return, 10% year 4 and x% year 5 at sale and that is a total IRR on the project...\n\nYou should still show it", "replies": [], "depth": 2}], "depth": 1}, {"id": "gywhken", "text": "Thanks for the responses. Sounds like I\u2019m not crazy and that I need to educate our investors. \ud83d\ude02", "replies": [], "depth": 1}, {"id": "gywro7m", "text": "Depends on the asset. Looking at equity multiples, IRR, YOC mainly for dev deals", "replies": [], "depth": 1}, {"id": "gyxecy9", "text": "Sometimes lenders don\u2019t even let you distribute until you\u2019re stabilized and if you\u2019re selling near or shortly after stabilization there actually won\u2019t be any distributable cash flow until sale. I would set expectations for investors that they\u2019ll get one big check and not to expect cash flow at all.", "replies": [], "depth": 1}, {"id": "gyxocgt", "text": "Agreed with the others on IRR and EM. For long term build and hold deals, I'll do a first cut look at stabilized COC (after perm financing) and compare it to COC on market price deals and value add deals in the market. I just think that's a lot quicker upfront than an IRR calc. Not sure how your investors will measure COC if they have varying negative cash outflows for the first 3 years.", "replies": [], "depth": 1}, {"id": "gyy7dp5", "text": "Investors like it to see what our would look like under a build to hold strategy.", "replies": [], "depth": 1}, {"id": "gyyfrw9", "text": "I would focus on untrended yield on cost", "replies": [{"id": "gyyiiqf", "text": "Thanks that makes sense", "replies": [], "depth": 2}], "depth": 1}, {"id": "gz0vupj", "text": "I agree with most of the comments, your IRR and EMx are going to be more important metrics. However, I just underwrote a deal where the GP/LP\u2019s requirement was for 5%+ CoC so yes there are developers that care but this shouldn\u2019t be the most important metric for decision making on a deal.", "replies": [], "depth": 1}]