Portfolio Cap Rate Compression Calculator

Cap rate compression lifts value. This calculator sizes.

Current NOI

Initial cap rate %

Compressed cap rate %

Value uplift

$13,043,478

Compressed value

$113,043,478

Uplift %

13.04%

How the math works

Initial value = NOI / initial cap. Compressed = NOI / compressed cap. Uplift = difference.

On $6.5M NOI compressing from 6.5% to 5.75%: value moves from $100M to $113M. $13M uplift (13%) — pure cap rate compression. Rate-driven moves dominate short-cycle returns.

How to Use

Enter current NOI.
Enter initial cap rate.
Enter compressed cap rate.
Read value uplift from compression.

Frequently Asked Questions

Why compress?

Macro: rates decline, cap rates decline. Property-level: improved credit profile, demand surge for asset type, submarket gentrification. Investment thesis component: expected compression bakes into underwriting.

Magnitudes?

25-50 bps typical cap rate move per cycle. Compression from 7% to 6% on $10M NOI = value lift from $143M to $167M ($24M or 17% uplift). Leveraged with 60% debt: equity multiplied by ~3x on compression alone.

Risk?

Inverse: expansion. Rates rise; cap rates rise; values fall. Post-2022, many markets saw 75-150 bps expansion. Leveraged equity decimated. Compression/expansion dominates value swing in short-hold periods; NOI growth dominates long-hold.

How does this interact with the rest of the capital stack?

Each tier of the stack affects the next. Senior debt constrains LTC and DSCR. Mezz and pref consume equity spread. Interest rate hedges protect DSCR but cost premium. Always model the full stack holistically — optimizing one tier alone often degrades another. Institutional underwriters run three or four scenarios across the stack before committing capital.