Development projects use three classic return metrics. Below are straightforward explanations with simple examples.
1) IRR (Internal Rate of Return)
- Measures the annualized return considering cash inflows and outflows.
- Sensitive to timing: receiving returns earlier tends to raise the IRR.
- Example: investing 100 and receiving 160 in 3 years is very different from receiving 160 in 5 years.
2) Equity Multiple
- The multiple of total capital returned over the capital invested.
- Example: invest 100 and receive 220 at the end of the cycle → EM = 2.2x.
- Complements IRR (a project can have a high EM but a moderate IRR if the time horizon is long).
3) Distributions
- Partial payments made during the project lifecycle (when provided for in the contract).
- They may depend on construction milestones, sales, or cash-flow performance.
- Distributions positively affect IRR by bringing returns forward in time.
4) Common interpretation mistakes
- Comparing numbers “at a glance” without considering timing.
- Ignoring product- or location-specific risk.
- Overlooking taxes and transaction costs.
Conclusion
Used together, these three metrics help compare opportunities and understand what is being priced into each project.
Request a sample MakeSpace financial model to see how these metrics apply in practice.
This content is for informational purposes only and does not constitute an offer or solicitation to purchase securities, interests, or project shares. Any offering will be made only by definitive documents (e.g., a Private Placement Memorandum) and in compliance with applicable law. Estimates and projections do not guarantee future results. This material is not financial, legal, or tax advice. Please consult with professional advisors.
