INVESTMENT ANALYSIS GUIDE
How to Calculate Development IRR
Development IRR measures the time-adjusted return on equity contributions and distributions over the project programme.
In this guideWhat the analysis measuresCalculation frameworkUnderwriting reviewHow to use the result
What the analysis measures
Use equity cash flow after debt, interest, fees and principal repayment. Contributions are negative and cash returned to equity is positive.
Calculation framework
Calculate IRR on consistently spaced monthly or annual periods. Annualise a monthly IRR as (1 + monthly IRR)^12 − 1 rather than multiplying it by twelve.
Underwriting review
Check that there is at least one negative and one positive cash flow. Multiple sign changes can create more than one mathematical IRR, so inspect NPV and cash-flow shape.
How to use the result
Compare IRR with equity multiple, profit on cost, duration and downside loss. Shortening a project can lift IRR without creating more absolute profit.