What replacement rent is required?
Back-solve for the minimum market rent per leasable square foot that produces enough NOI to cover the chosen land, hard, and soft costs at the required yield.
One feasibility boundary, two inverse questions
A project is feasible only when its stabilized yield on total development cost meets the required return.
What is the maximum land cost?
Capitalize the stabilized NOI at the required return, then subtract hard and soft costs. The remainder is the residual value available for land.
Market rent ≥ replacement rent ⇔ land cost ≤ maximum land cost ⇔ yield on cost ≥ required return
Interactive development model
Move market rent or land cost continuously. Both inverse solutions and the feasibility chart update from the same assumptions.
Building, operating, and site assumptions
Expected yield on cost10.18%0.18 percentage points above required
Replacement rent$37.59/LSFMinimum market rent for feasibility
Maximum land cost$32.70/GSFResidual land value per building GSF
Maximum total land price$1,424,41243,560 building GSF at 1.00× FAR
Given current land cost
$37.59/LSFThe market rent is $0.41 above the replacement rent.
Given current market rent
$32.70/GSFThe current land cost is $2.70 below the maximum.
Feasibility boundaryAbove the line is feasible
The current project is the orange point. Its vertical projection gives replacement rent; its horizontal projection gives maximum land cost.
From market rent to yield on costAll unit values are per building GSF unless noted
Market rent per leasable SF$38.00
Effective rent after vacancy per LSF$36.10
Rental revenue per building GSF$25.27
Operating costs($10.00)
Stabilized NOI$15.27
Total development cost$150.00
Required NOI at target return$15.00
0%15%
Feasible: The expected yield on cost exceeds the required return.
Model equations and course benchmarks
The transparent calculation chain makes the inverse solutions directly auditable.
Current calculationValues update with every assumption
| Calculation | Current value | Interpretation |
|---|---|---|
| Effective rent per LSF | $36.10 | Market rent × occupancy |
| Rental revenue per GSF | $25.27 | Effective rent × efficiency |
| Stabilized NOI per GSF | $15.27 | Revenue − operating costs |
| Yield on cost | 10.18% | NOI ÷ total development cost |
| Replacement rent per GSF | $25.00 | Required return × cost + operating costs |
| Replacement rent per LSF | $37.59 | Replacement rent per GSF ÷ efficiency ÷ occupancy |
| Maximum land cost per GSF | $32.70 | NOI ÷ required return − soft costs − hard costs |
Replacement rent per LSF = [required return × (land + hard + soft) + operating costs] ÷ [efficiency × (1 − vacancy)]
What students should notice
Feasibility is jointly determined by revenue, costs, building efficiency, and the required return.
Land and rent are linked
A higher land price requires a higher replacement rent. A stronger market rent supports a higher residual land value.
Efficiency and vacancy matter twice
Quoted rent is per leasable square foot, while development costs are per gross square foot. Space loss and vacancy reduce the revenue available to support cost.
Negative residual value is informative
If maximum land cost is negative, the project cannot meet the required return even with free land; rent, design, or non-land costs must change.
Instructional-use notice. This tool was created for FIN 355 at California State University, Fullerton. It is a simplified feasibility screen and is intended for teaching only, not for financial, legal, tax, appraisal, or investment advice.