Development of Capitalization Rates

The development of a capitalization rate is an important part of the income approach to value, but it can be a challenge for assessors/appraisers. This workshop explains capitalization rates, as well as provides methods for developing a well-supported capitalization rate using comparable sales, mortgage information and investor surveys. The differences between an overall capitalization rate, a land capitalization rate, and a building capitalization rate will be discussed. Other issues such as unloaded versus loaded capitalization rates will also be addressed. The workshop reviews the difference between capitalization rates used in direct capitalization and a yield rate used in yield capitalization (discounted cash flow or DCF analysis). The material includes current market data from a variety of resources.