Commercial Real Estate Capitalization Rate (Cap Rate) & NOI Calculator
The Capitalization Rate (Cap Rate) is the fundamental valuation benchmark in commercial real estate, reflecting the unleveraged rate of return expected on a property based on its Net Operating Income.
Standard Default Parameters
Underwritten Results Preview
Interactive real-time sliders and calculation engine enabled on live page.
Capitalization Rate (Cap Rate) Formula
Cap rate expresses the relationship between net property cash flow and market price. Lower cap rates reflect lower perceived risk and higher asset pricing; higher cap rates reflect higher risk or higher yield requirements.
Formula Components
Anchored Community Shopping Center
An institutional investor analyzes a $10,000,000 neighborhood retail center generating $1,250,000 gross revenue with $450,000 in annual operating costs.
Inputs
Sizing Outcomes
Underwriting Limitations & Disclosures
- Cap rates measure unleveraged returns and do not reflect mortgage debt financing, mortgage interest deductions, or sponsor income taxes.
- Cap rates fluctuate significantly depending on asset class, creditworthiness of anchor tenants, remaining lease term (WALT), and geographic market tier.
- All calculated figures are provided for educational and deal screening purposes. Actual lender term sheets depend on full underwriting review.
Frequently Answered Financing Questions
Verified answers to common borrower and broker inquiries regarding loan sizing, guidelines, and execution.
What is the relationship between commercial cap rates and interest rates?
Cap rates generally move in the same direction as long-term interest rates; when the 10-Year Treasury yield rises, commercial lenders and equity buyers demand higher cap rates to maintain a positive spread.
Historically, commercial real estate investors require a 150 to 250 basis point spread between in-place cap rates and the 10-Year Treasury to compensate for asset illiquidity and management risk.
Submit Financing Scenario →How does going-in cap rate differ from exit cap rate in underwriting?
Going-in cap rate is based on Year 1 in-place net operating income at purchase, while exit cap rate is the projected market cap rate used to estimate property resale value at the end of the holding period.
Conservative underwriting typically expands the exit cap rate by 25 to 50 basis points above the going-in cap rate to account for aging building components and market cycle uncertainty.
Submit Financing Scenario →