Solve for capitalization rate or value — and see what it implies for senior debt.
What is a cap rate?
The capitalization rate is a property’s unleveraged annual return — net operating income divided by value. It’s the market’s shorthand for pricing income-producing real estate.
Cap rate = NOI ÷ Value · Value = NOI ÷ Cap rate
A lower cap rate implies a higher value for the same income; a higher cap rate, a lower value.
Why it matters for financing
Value drives the LTV constraint on your loan. Since most senior lenders cap leverage at a share of value, the cap rate you underwrite to directly shapes your maximum proceeds.
Size the loan against value — Loan Sizing →For
CRE owners, developers, investors, and brokers valuing income-producing commercial real estate.
Not for
Residential valuation, consumer loans, equity raises, securities offerings, or investment solicitations.