SPV Valuation, Equity Sale Structuring & ROI Calculation?

[Are Hvalbye]

Some questions for those with a few development projects under the belt and a good grasp of the "financial engineering".

Let's assume the following numbers for a multi-unit suburban residential project:

Newbuild sales value: 3.8MUSD
Construction cost: 1.6MUSD
Cost of terrain: 0.8MUSD

Potential gross profit: 1.4MUSD

So with a 36+% EBIT margin there is plenty of proverbial meat on the bone.

A - for now - thinly capitalized SPV is formed for holding the option to acquire the plot as well as permit filings, etc.

Given a targeted pre-tax margin of, let's say 15%, a developer would implicitly be willing to pay (3.8M x 0.15 = 570k) --> (3.8M - 1.6M - 0.57M) = 1.63MUSD, i.e. 830k above the plot "strike price" (hence this amount represents the implied valuation of the SPV).

The idea would then be to sell two-thirds of the equity in the SPV to an external investor (developer) for (0.75 x 1.63M) = 1.22M. Whereas the plot would be financed with a 60% LTV bank loan, implying a need to retain (or rather reinvest as paid-in capital?) approx. (0.8M x 0.40) 320k in equity. This leaves about 900k from stock the sale along with a 25% claim on future profits (stipulated at 570k x 0.25 = 143k EBIT), i.e. a total return of in excess of 1MUSD.

The investor/developer would make 570k x 0.75 = 427k (pre-tax) on his 1.22M investment, i.e. a ROI of 427k/1.22M = 35% (given the stipulated 15% EBIT margin).

Does this math makes sense? Am I properly accounting for the debt financing?

On a more general note, how do you normally judge and determine profitability of development projects? ROI? IRR? NPV? What metrics would you focus on and what would be your target and minimum threshold?

Thanks in advance!