ACTIVITY: DERIVING THE CAPITALIZATION RATE Your client is considering selling a property which has the following financials:

NOI = $185,000

Current Loan Balance = $700,000

ADS = $85,000

Investors are requiring a cash-on-cash rate of return of 6%.

Loans are available with a 25-year amortization and eight-year due date at a rate of 9.5% for an 80% LTV% ratio. Three sales of comparable buildings have occurred in the past month:

Sale 1:Sale Price = $1,515,000 NOI = $144,226

Sale 2: Sale Price = $1,402,500 NOI = $137,163

Sale 3: Sale Price = $1,561,000 NOI = $154,660

1. Calculate the average capitalization rate from comparable sales.

2. Loans are typically available at 80% of the value. The current loan consistency is 10.48%. Use mortgage equality analysis to determine the capitalization rate.

3. Comparer those three methods of delivering capitalization rate. Which do you think is more precious for this property? Use the capitalization rate to find the market value of the city Tower.