Glossary definition
Hurdle Rate
The minimum rate of return that a project must achieve before an investor will commit capital, used as a benchmark in investment decision-making. In development finance joint ventures, the hurdle rate is often structured as a preferred return to the equity investor — typically 8–12% per annum — above which profits are shared according to an agreed promote or waterfall structure.
Definition
The minimum rate of return that a project must achieve before an investor will commit capital, used as a benchmark in investment decision-making. In development finance joint ventures, the hurdle rate is often structured as a preferred return to the equity investor — typically 8–12% per annum — above which profits are shared according to an agreed promote or waterfall structure. Projects that fail to clear the hurdle rate are unlikely to attract institutional or private equity capital.
See also
Closely related terms.
IRR (Internal Rate of Return)
The annualised rate of return at which the net present value of all cash flows from an investment equals zero, used to compare the profitability of different development opportunities on a time-adjusted basis.
Equity Multiple
A metric that measures the total cash returned to an equity investor as a multiple of their original investment — for example, a £500,000 equity contribution that returns £1,000,000 represents a 2.0x equity multiple.
Profit on Cost
A measure of development profitability calculated by dividing the projected profit by the total development costs and expressing it as a percentage.
Equity
The developer's own capital contribution to a project, sitting at the top of the capital stack and bearing the highest risk but also receiving the residual profit.
Further reading
Guides that touch this term.
Guide
The Capital Stack in Property Development: How to Structure Your Funding
A comprehensive guide to understanding and structuring the capital stack in UK property development, from senior debt through mezzanine to equity contributions.
9 min read readReadGuide
How Does Development Finance Work? A Complete Guide for UK Developers
A ground-up guide to how development finance is structured in the UK, covering loan mechanics, drawdown schedules, monitoring surveyors, and what lenders look for in your application.
5 min read readRead
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