There is wide market consensus that cap rates are expected to rise in the near future. Below are some expectations for cap rates, rental rates, and expenses. Property Type/ Going- in Cap Going-out Cap rate Annual Annual Location Rental Growth Expense Growth rate Warehouse 8.0 8.0 2.0 2.0 2.0 Full Service Office Class B Using a 5-year holding period I have calculated the unlevered IRR for each product type assuming - Income -$10,000 and Expenses -$3,000 in the first year (t-1). I assumed that NOI can be found by subtracting expenses from income in each year (NOI-Rent - Expenses). 1. Using the results below - why do the hotel and office building unlevered IRRS differ relative to warehouse unlevered returns. 8.0 9.0 2.0 8.0 8.0 2.0 1.0 Things to consider- A - Are the difference primarily due to cap rates going up or down? B - Are the difference primarily due to NOI growing faster or slower? C-Are the difference primarily due to events (changes over time) in the space market or capital market? Hotel versus Warehouse A- Difference primarily due to cap rates going up B- NOI for the hotel and warehouse are growing at the same rate, starting at $7,000 and ending at $7,729 C- Primary difference for Hotels vs. Warehouses would be in the space qarket because warehouses take much less time to build and have available kor use. Office versus Warehouse A- Going in and going out cap rates are both the same for offices and warehouses B- Difference primarily due to NOI growing faster in office buildings C- Differences primarily due to changes in the capital market