Beyond the Cap Rate: Valuation of Multifamily Properties

Jun Li () and Xiaoli Liang
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Jun Li: Freddie Mac Multifamily
Xiaoli Liang: Freddie Mac Enterprise Risk Management

The Journal of Real Estate Finance and Economics, 2020, vol. 60, issue 1, No 6, 99-110

Abstract: Abstract Estimating the value of multifamily properties and other commercial real estate properties is an important but difficult task for real estate investors and researchers. The commonly used capitalization rate model, which involves the estimation of capitalization rates, has limitations in practice, especially during periods of financial stress. This paper proposes a new property valuation methodology that directly estimates the value of multifamily properties by accounting for both market trends and property operating performance. Our results show that this new model significantly improves the valuation of multifamily properties, particularly distressed properties. This methodology can also be applied to the valuation of other commercial real estate properties.

Keywords: Property valuation; Multifamily; Commercial real estate; Capitalization rate; Real estate management; Distressed properties (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1007/s11146-019-09717-9

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