Cap rates and direct capitalization

Value = NOI ÷ cap rate. The cap rate is the market's current-yield requirement for that income stream: risk, growth expectations, liquidity and interest rates fold into one number. At $1.47M NOI, 6.25% implies ~$23.5M; move the cap 50 bps and value moves roughly 8% — which is why serious work quotes ranges, not one decimal of false precision.

What moves cap rates: tenancy quality and term, location and asset quality, growth prospects (a below-market rent roll justifies a lower cap on in-place NOI), capital-market conditions (spreads over treasuries), and property type cycles. Comparables set the range; the subject's specifics pick a point inside it.

Direct cap is a snapshot method — one stabilized year capitalized. It struggles with transitional assets (lease-up, heavy near-term rollover, major capex), where a multi-year DCF tells the honest story.