How does someone get the specific (standard) cap rate for a specific area, region or city?

I plan to lease a building that is being built to my specifications and specifically for my use (healthcare). The cost (bid analysis), including the land, is $3.9 million. Based on the local cap rate in Newburgh Indiana, I am attempting to determine what would be a fair rent for this property on a 20 yr lease with a 10 yr guarantee. I have not been able to identify a cap rate for that area. Your assistance is appreciated.
In Market Conditions - Asked by Dean S. - Dec 15, 2008
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Mark S.
Brandon, FL

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
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Chris S.
Coeur D'alene, ID

There is no answer to that question because there is no such thing as a standard cap rate. You would be much better off to establish market rent using a discounted cash flow/ IRR analysis using a reasonable rate of investor return. Such an analysis would reflect more accurately the effects of the length of the lease you have identified.

Jan 5, 2009
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