Cap rates key in valuing commercial real estate

11:23 PM, Dec. 21, 2011 
By Aki & Jim Palmer who are commercial real estate brokers with Cassidy Turley Fuller Real Estate. Contact them at apalmer@ctfuller.com or jpalmer@ctfuller.com.

Summary: Capitalization rates help a commercial real estate buyer determine the relative worth of an income producing property. To calculate a gross cap rate, divide the property's net operating income by the sale price. Usually, the lower the cap rate, the lower the interest rate to purchase the property.

Key Quotes:
...Most investors value commercial real estate investment properties using a capitalization (cap) rate.

A cap rate is a ratio used to estimate the value of an income-producing property. In simple terms, a cap rate is the net operating income divided by the sales price or value of a property expressed as a percentage.


Investors, lenders, commercial brokers and appraisers use cap rates to estimate the purchase price for different types of income producing properties. Cap rates are determined by evaluating comparable financial data of similar properties, which have recently sold in a specific market.

Other factors used to determine cap rates include location, credit worthiness of the tenant(s), age of the building, length and type of lease(s) and building classification.
Read the full article at Cap rates key in valuing commercial real estate.

A. Joseph Marshall
Coldwell Banker Commercial
Commercial Real Estate Advisor
Savannah, Ga