A variety of characteristics will determine the appropriate capitalization rate for a property. In addition to the location and the submarket within a region, the cap rate will be influenced by the property type (retail, industrial, healthcare, etc.), the age and quality of the improvements, the occupancy and tenant characteristics, and other factors.
If you have the terms of the proposed financing and your project equity return requirements, you can estimate your target cap rate using the band-of-investment method.
Dec 15, 2008