Replacement Cost

This is the cost to build a brand new, similar, and competing project in the same location as an existing building.

When underwriting a property, it is important to understand the replacement cost.  If a brand new and almost identical building can feasibly be built for cheaper on a per square foot basis in a nearby location than what it would cost to buy the project being evaluated, then the replacement cost is lower than the cost to purchase and the investor should consider passing on the property and/or developing the new project.