| What it is |
Income value is a property's worth based on the income it produces, calculated by dividing net operating income by a market capitalization rate. |
Development value is a property's worth based on what can be built on it, calculated by multiplying buildable SF (lot size x FAR) by the market price per buildable foot. |
| The metric |
Value = NOI divided by cap rate. A building generating $400,000 NOI at a 5.5% cap rate equals about $7.3M — regardless of what zoning would permit on the lot. |
Value = buildable SF x $/buildable foot. A 10,000 SF lot in an R8 district at FAR 6.02 = 60,200 buildable SF. At $250/buildable foot = $15.0M — roughly double the income value on the same lot. |
| Inputs needed |
Rent roll, NOI, expense ratio, market cap rate, and lease terms and rollover dates. |
Lot area, zoning and FAR, applicable density bonuses, comparable land-sale prices per buildable foot. BKREA's 2026 portfolio: Manhattan rental dev sites $231–$337/SF buildable; condo dev sites $452–$774/SF buildable. |
| What buyer pool it attracts |
Yield-focused buyers — private investors, REITs, 1031 exchange buyers, and family offices seeking stable return. |
Developers and builders seeking returns from ground-up construction or conversion. At 81 East 3rd Street, BKREA's development-framed process attracted 220 groups and 12 bids. |
| When each is the right frame |
Income value is the right frame for a stabilized building with solid in-place income and little excess FAR — where the building, not the land, is the primary source of value. |
Development value is the right frame for an underbuilt lot, a building with weak or expiring income, or any property where land value exceeds capitalized income. |
| Worked example — same property, two frames |
A 10,000 SF lot in an R8 district with a 20,000 SF building netting $400,000/yr: $400,000 divided by 5.5% cap = $7.3M. Income buyers would pay $7.3M. |
Same lot allows 60,200 buildable SF at FAR 6.02. At $250/BSF = $15.0M. A developer would pay $15.0M — $7.7M more. Pricing on income alone leaves over half the property's value on the table. |
| When it applies to an owner |
Income framing applies when the property is fully built to its FAR, cash flow is stable, and no meaningful unused development rights exist. |
Development framing applies when the property is underbuilt relative to zoning — when land value exceeds income value, which signals the market sees a higher and better use. |
| How it affects value or owner decisions |
Pricing on income frames the property as a yield asset, which suits a sell-to-investor decision but can dramatically understate value on an underbuilt site. |
Pricing on development potential frames the property as land, which can reveal a far higher value and shift the owner's decision toward selling to a developer — or recognizing that conversion or teardown creates more value than holding. |
| Common misconception |
Many owners assume a property has one "real" value or that in-place income sets the ceiling — but the same property can be worth far more as a development site than as an income asset. An owner who has not run both numbers does not know what their property is worth. |
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| Key question an owner should ask |
An owner should ask: "Is my property worth more for its income or for what can be built on it — and have I run both numbers?" — see [Development Site vs. Income-Producing Asset]. |
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| What the wrong choice costs |
Pricing a development site on income attracts income buyers at cap-rate value and misses developers willing to pay land value. On a site where land value is double income value, this mistake forfeits 50%+ of the property's true worth. |
Pricing a stabilized income building on speculative development potential when the site has little unused FAR produces an unrealistically high ask, attracts no credible bids, and leaves the property shopworn. |
