Cap rate

Cap rate (capitalization rate) — a property’s annual income after operating costs, divided by the property’s value. It’s how the market prices buildings themselves, before any loan enters the picture: PH commercial property trades at roughly 6–10% cap rates, residential 4–6%. A REIT is a basket of cap rates with a management layer and daily liquidity on top — its dividend yield is downstream of its buildings’ cap rates minus costs. Introduced here as vocabulary; Level 3 computes it properly on live deals, where it becomes the buy/sell filter.

First used in: 2.2 · REITs: landlord without tenants