What is the Exit Cap Rate used for?

The Exit Cap Rate is a critical component in valuing a property at the time of sale. It represents the expected capitalization rate that buyers will apply to the net operating income (NOI) of the property when it is sold. Essentially, the Exit Cap Rate is used to estimate the future value of an asset based on its income-generating potential at the time of exit.

When a property is sold, potential buyers will look at the current NOI and apply the Exit Cap Rate to determine how much they are willing to pay for the property. This calculation helps in forecasting returns and making investment decisions. The Exit Cap Rate reflects the market's expectations about risk, growth, and demand for similar properties, providing insights into the property's overall value during a sale.