Question

For each of the factors listed below indicate whether the factor,
independently, is likely to cause a particular income producing property to trade for a
lower or higher CAP rate compared with an average property. For this question, no
explanation is needed. Indicating factors a through g
is sufficient.
a. Lower volatility in rent prices and occupancy rates.
b. Worse location
c. High inflation environment
d. High risk premium environment
e. Market general higher than normal expected NOI growth
f. Lower construction quality
g. High quality tenants

Answer 1

Cap rate is given by where stands for required rate of return and stands for growth rate.

(a)lower volatility in rent prices and occupancy rates - lower cap rate than average property.

(b)worse location - higher cap rate than average property.

(c)high inflation environment - higher cap rate than average property.

(d)high risk premium environment - higher cap rate than average property.

(e)market general higher than normal expected NOI growth - lower cap rate than average property.

(f)lower construction quality - higher cap rate than average property.

(g)high quality tenants - lower cap rate than average property.

answered by: anonymous