Vol. 1, No. 2 .
Street Level.
A biweekly dispatch from BrandView on retail, mixed-use, and the neighborhoods where culture meets capital.
OUR TAKE
Cap Rate Tells You What the Market Thinks. YOC Tells You What You Built.
Most retail in our market gets underwritten on cap rate, which is fine if you're buying a story someone else already wrote. At BrandView, we obsess over yield-on-cost because it's the only metric that tells us whether the work our team did on an asset created value, or whether we just rode a market. Cap rate is what the room thinks today. YOC is what we built.
THE SIGNAL
Before you measure, make sure you’re asking the right question.
A vacant or transitional building cannot be sold for a cap rate. There is no stabilized NOI to divide into. The asset has to be evaluated on yield-on-total-cost, which is a different question entirely — not "what is this worth today?" but "what will this produce as a percentage of every dollar we put into it?"
The formula we use:
YOC = Stabilized NOI ÷ Total Project Cost
Stabilized NOI = Rent - Vacancy - Operating Expenses
Total Project Cost = Purchase Price + Carry Cost during vacancy + Construction + Leasing + Permitting
Every dollar that hits the page before the property starts producing belongs in the denominator. Carry through lease-up. Tenant improvement (TI) dollars. Permit timelines that pushed rent commencement out two quarters. The basis is the basis. You don't get to discount it later because the market moved in your favor.
That's the version of the metric we live in. We've underwritten deals where the going-in cap rate looked thin (0-4%) and the YOC at stabilization, 24 months out, penciled to 7.25% on the basis we'd actually committed. We've also walked from deals where the cap rate looked clean and the YOC math, once we layered in real capex and real downtime, didn't clear our hurdle.
The exit math is where YOC becomes a profit mechanism rather than just a discipline. If we underwrite to a 6% YOC on our basis and the market will trade the stabilized cash flow at a 5% cap rate, that 100-basis-point spread on the same NOI is the deal. The spread is what gets paid for the work — the carry absorbed, the leasing executed, the operating plan delivered. Cap rate compression is a market gift; YOC-to-cap-rate spread is something you actually built and manage forward.
THE STREET VIEW
You can't optimize an asset you can't measure honestly.
The practical move for any owner reading this: pull your last three acquisitions and compute the actual YOC on each, using the basis you actually have — not the underwriting basis from two years ago. Include every capex dollar, every month of downtime, every leasing commission. The number that comes out is the honest one.
Our Founding Principal, Babak Ziai, teaches this in the Master of Real Estate Development program at USC where he came up. The graduate-level conversation isn't whether to use YOC — it's how to set the required spread against the risk profile of the basis, how to underwrite the carry on a transitional asset, how to defend the math to a capital partner who's seen it work and seen it fail. It's the metric we want every associate we train to internalize before they ever sign a PSA, and it's the same metric we run every single deal on at BrandView.
A broker we work with on the Westside put it this way last month:
"Half my owners can quote me their cap rate today. Maybe one in ten can tell me their yield-on-cost. The ones who know it are also the ones who don't sell at the wrong time."
That's the tell. The owners who know their YOC are the ones who can underwrite their own asset against the next opportunity and recognize whether they're sitting on something performing, something coasting, or something quietly bleeding.
We use YOC because it's the metric that holds us accountable to our investors and to ourselves. It's why our advisory engagements start with a basis reset before they start with a strategy. It’s how we look at every retail and mixed-use asset we touch — on the basis, not on the comp.
If you're evaluating an asset and the YOC story doesn't line up with the cap rate story, that's a conversation worth having.
Until next time,
The BrandView Team
BrandView Inc is a fully integrated commercial real estate platform based in Los Angeles. We buy, operate, and manage neighborhood retail and mixed-use across the Western U.S.
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