VALUATION GUIDE
How to Select an Exit Cap Rate
The exit cap rate converts forward NOI at the end of a hold into terminal property value.
In this guideWhat the analysis measuresCalculation frameworkUnderwriting reviewHow to use the result
What the analysis measures
Apply the exit cap to the first full year of NOI after the sale date unless the model convention states otherwise. Deduct selling costs separately.
Calculation framework
Consider the future age, lease profile, capital needs, location and interest-rate environment of the asset rather than copying the entry cap rate.
Underwriting review
A lower exit cap increases terminal value and often dominates IRR. Show sensitivity and avoid relying on cap-rate compression for the base case.
How to use the result
Reconcile terminal value with a buyer’s likely yield and financing capacity. A mathematically high value may not be financeable or market-supported.