What ROE is typical for a small residential development?
I realize this is a bit of a “how long is a piece of string” question but my background is exclusively buying, renovating and holding small to mid size (10-30 unit) multi family rentals.

I typically look at how much value I can add and how much of my equity I can take out at completion.  So rather than a strict ROI or ROE I’ve only been interested in getting 80% or more of my equity back out and having a cash flow positive building.

So now I’m looking at a tear down, re zone and new build project with some outside investors and I’m well familiar with cap rates, but what do investors typically need in terms of ROE?  

The deal works for me because I can a) afford it b) get about 80% of equity out and c) be cash flow positive.  But I’m sure roi and roe will come up and I realized I have no idea what is typical.

Thoughts?

This is in a major city, ~$5mm cap ex, 25% equity.
[{"id": "gk0f267", "text": "Anything better than something of equal risk. I personally wouldn\u2019t consider anything less than 25% worth it but of course everyone has their own benchmarks.", "replies": [{"id": "gk0m58x", "text": "What is an example of when you were able to get a 25% ROI? Assuming you\u2019re talking about annual NOI over total investment.", "replies": [{"id": "gk1i6iw", "text": "Assisted living", "replies": [{"id": "gk35h8l", "text": "That\u2019s really interesting, where would I be able to read up on some of the economics and operations for that?", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "gk0k09h", "text": "We have a higher threshold for ground up development but we look for a MOIC of 2x", "replies": [], "depth": 1}, {"id": "gk0mukc", "text": "In development most investors look for two key metrics:\n\n* IRR, the ideal target IRR for a development deal is 20% \n* \"Spread\" aka your proforma cap rate (NOI/total development costs) - market cap rate; for multifamily spreads range anywhere from 100 bps for prime locations in major markets to 250 bps for more rural deals in tertiary markets", "replies": [{"id": "gk0oown", "text": "Thanks that is very informative.  The IRR is around 18% and the pro forma cap is about 4.3% vs market cap of 3.5-3.6.  That said I think I\u2019m being too conservative on the proposed rents for a 2022 completion which is a habit from my background of renovating apartment buildings...\n\nI appreciate the input!", "replies": [{"id": "gk0y12h", "text": "Where are your caps 3.5?", "replies": [{"id": "gk13pdi", "text": "Vancouver", "replies": [{"id": "gk23h1p", "text": "Are you building a class A building? Or are those cap rates not for class A?", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}, {"id": "gk0y5rl", "text": "Forgive my ignorance, but the difference between a 5 cap and 6 cap is 100 bps right?", "replies": [{"id": "gk23cs4", "text": "Correct", "replies": [], "depth": 3}], "depth": 2}, {"id": "gk1awrt", "text": "How are you calling proforma cap rate NOI/total development costs?  Cap rate is a valuation metric.", "replies": [{"id": "gk2hvre", "text": "Yeah, TDC does not equal value... \n\nFor others wondering, cap rate is NOI/Value. In real estate you often have subsidies, deferred fees, etc. that change the value of a property beyond its costs to build.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}]