What is a capitalization rate?

A capitalization rate (cap rate) is a measure of the rate of return that an investor can expect to receive on a real estate investment. It is calculated by dividing the net operating income (NOI) of a property by its purchase price or current market value. For example, if a property has an NOI of $100,000 per year and is being sold for $1,000,000, the cap rate would be 10% (100,000 / 1,000,000).

Cap rates are often used to compare the profitability of different real estate investments, as well as to evaluate the potential return on investment for a particular property. A higher cap rate generally indicates a higher potential return on investment, while a lower cap rate may indicate a lower potential return or a higher level of risk. However, it is important to note that cap rates can vary significantly depending on a number of factors, including the location and condition of the property, the strength of the local real estate market, and the terms of the lease.

For assistance with commercial leases, commercial lease renewals, or general guidance in regards to commercial lease agreements here in Anchorage or elsewhere in Alaska, feel free to reach out to me via cell, email, or my website and I'd be happy to assist.