If you’re trying to determine if the asking price for an office development site will allow it to pencil, your first pass analysis should be a quick, back of the envelope calculation. Back of the envelope (BOTE) analysis purposefully solves for a fictitious stabilized yield on cost assuming today’s development costs and today’s rents and expenses, even though the property being contemplated won’t contract with a GC or be signing leases for at least a year.
Why do we use today’s values as the assumption inputs? The rationale is that if we could snap our fingers and the envisioned property would appear and be stabilized, and it does not produce a sufficient yield with numbers about which we have a high level of certainty, we don’t want to spend any more time on analyzing the same site with even more uncertain future assumptions values.
Our BOTE calculators have been in use for years, and are now appearing in a supercharged state on Valuate®. Our most recent one is the office building development BOTE. A video tour is below.