Real estate valuation / ORIGINAL SCENARIO

Property value and financing

A fictional property produces stabilized annual NOI 6.3 at a 6% cap rate, with mortgage 65. Estimate unlevered property value and equity value.

Amounts $m. NOI excludes financing, tax and depreciation. No cash, transaction costs or other claims. Cap-rate approximation, no growth forecast.

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Worked answer

value: 6.3 ÷ 0.06 = 105
equity: 6.3 ÷ 0.06 − 65 = 40

Capitalize stabilized unlevered NOI; subtract mortgage for equity.

Technical follow-ups

If cap rates rise with NOI flat, what happens to property value? What other diligence would you need?

Which matters more for a proposed bid: current NOI or the reliability of stabilized NOI? Explain the diligence you would request.

Follow-up answer guide

Value falls with higher cap rate and fixed positive NOI. Verify leases, occupancy, recurring capex, taxes, market rents, refinancing and whether NOI is truly stabilized.

A fresh retry

A fictional property has stabilized annual NOI of 8.4, a 7% cap rate, and a mortgage balance of 72. Calculate unlevered property value and equity value.

Amounts $m. NOI excludes financing, tax and depreciation. No cash, transaction costs or other claims. Cap-rate approximation, no growth forecast.

Inspect replacement inputs

noi: 8.4
cap: 0.07
debt: 72

Check the retry bridge

value: 8.4 ÷ 0.07 = 120
equity: 8.4 ÷ 0.07 − 72 = 48

Original fictional example. Not a report of a specific firm’s interview. Explanations need qualified human review.