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Beyond the Cap Rate: Valuation of Multifamily Properties

Author

Listed:
  • Jun Li

    (Freddie Mac Multifamily)

  • Xiaoli Liang

    (Freddie Mac Enterprise Risk Management)

Abstract

Estimating the value of multifamily properties and other commercial real estate properties is an important but difficult task for real estate investors and researchers. The commonly used capitalization rate model, which involves the estimation of capitalization rates, has limitations in practice, especially during periods of financial stress. This paper proposes a new property valuation methodology that directly estimates the value of multifamily properties by accounting for both market trends and property operating performance. Our results show that this new model significantly improves the valuation of multifamily properties, particularly distressed properties. This methodology can also be applied to the valuation of other commercial real estate properties.

Suggested Citation

  • Jun Li & Xiaoli Liang, 2020. "Beyond the Cap Rate: Valuation of Multifamily Properties," The Journal of Real Estate Finance and Economics, Springer, vol. 60(1), pages 99-110, February.
    • Handle: RePEc:kap:jrefec:v:60:y:2020:i:1:d:10.1007_s11146-019-09717-9
    DOI: 10.1007/s11146-019-09717-9
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    References listed on IDEAS

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    6. Brent W. Ambrose & Hugh O. Nourse, 1993. "Factors Influencing Capitalization Rates," Journal of Real Estate Research, American Real Estate Society, vol. 8(2), pages 221-238.
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    Cited by:

    1. Matt Larriva, 2022. "Cap Rates as a Function of Real Economic Growth," JRFM, MDPI, vol. 15(8), pages 1-18, July.

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