How should I calculate return/yield on common area/community amenity renovations?

[Hunter Brown]

First post so take it easy on me. I'd like to analyze past projects to see if it was a good decision to invest capital into a renovation project. Below are all of the factors that play into these projects and why I have a hard time calculating a true and fair return % on them.

- These projects are separate than unit interior renovations (most of these properties had units renovated 7+ years ago and that was easy to measure).

- I want a market adjusted return/yield. For example, one property was in a distressed market where comparable properties have seen a ~8% decline in average rents over the last 18 months (the period since completing renovation project). This property has actually produced positive rent growth over the same period. Same concept applies to projects that were in hot markets in 2021-22 producing 20+% rent growth. I'm not trying to take credit for organic rent growth because that doesn't tell me if I should have or should not have done the renovation project. This part is not that difficult as I am just applying the market rent change to my property and taking the difference between that number and my actuals.

-  I do not want to factor in purchase price or forecast an exit price. Most of these were purchased 15-20 years ago and are long term holds.

- I underwrote these projects only using annualized revenue (rent increase with some extra vacancy loss in year 1 x total units x 12 months) / total project cost

- For projects I know were successful, I'm seeing a larger increase in NOI than expected so shifting to a yield on cost metric that's market adjusted NOI growth / total project cost.

- I'm seeing a lot of volatility on these and can't land on what metric to use. I have also thought about calculating property value change above market growth, cash-on cash return, and IRR.

Please feel free to ask any questions. Happy to discuss renovating apartments as I have learned a lot over the years in this business. Thanks!