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Terminal Cap Rate Calculator
Terminal (exit) cap rate is the single most important assumption in commercial DCF. Most underwriters default to entry cap + spread to account for aging. This calculator computes terminal cap and resulting exit value.
Terminal cap rate
6.25%
Exit value
$4,776,209
Exit-year NOI
$298,513
How the math works
Terminal cap rate = entry cap + aging spread. Most institutional underwriting uses 25-75bps of spread to account for the asset being older (and therefore needing more capex) at sale.
Skepticism about terminal cap is the #1 red flag reviewers watch for. If a sponsor uses flat or compressing cap at exit, they're implicitly betting on market tailwinds.
How to Use
- Enter entry cap rate.
- Enter basis-point spread (aging premium).
- Enter year-1 NOI.
- Enter hold years and NOI growth.
- Read terminal cap rate and exit value.
Frequently Asked Questions
Typical spread?
25-75bps for core/core-plus; 50-100bps for value-add; 0-50bps for brand-new construction. Institutional LPs commonly require a minimum 25bps cushion regardless of view.
When is spread zero or negative?
When you plan to substantially reposition and exit into a better-rated asset class (e.g., B-class multifamily renovated to A-minus). Even then, LPs push back — use 0 flat at most.
How does spread interact with interest rates?
Rising rates widen spreads (cap rates expand); falling rates narrow them. Don't assume today's cap stays flat — history shows 100-150bps moves over 5-7 years are routine.
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