What a cap rate measures
The cap rate is the unlevered yield a property produces at a given price. $750,000 of NOI on a $12,500,000 price is a 6% cap rate. A lower cap rate means buyers are paying more for each dollar of income, usually because they expect growth or see less risk; a higher cap rate means the reverse.
The same arithmetic runs backwards. Divide a stabilized NOI by a market cap rate and you have a value estimate, which is how bridge lenders and sponsors project the as-stabilized value that a business plan is meant to reach.
Going-in versus exit cap rate
The going-in cap rate uses today's NOI and price. The exit cap rate is the assumption used to value the property at sale or refinance, applied to the NOI expected then. Most underwriting assumes an exit cap rate somewhat higher than the going-in rate to leave room for rate movement and asset aging.
Small changes matter. Moving an exit cap rate from 6.0% to 6.5% reduces the implied value by roughly 8%, which can erase a subordinate position or push a refinance below the proceeds needed to repay a bridge loan.
Limitations
Cap rates depend on how NOI is defined and on comparable sales that may be stale or dissimilar. They also ignore leverage, capital expenditure, and the timing of cash flows. Use the result as a screening figure and a way to test value assumptions, not as a valuation.
The result is an arithmetic output from the numbers you enter. It is not a quote, a term, or an underwriting decision, and H Equities does not see or store what you type.