Financial Modeling
Valuation
Cap rate, NOI, DCF, terminal value, and replacement cost — the four institutional valuation lenses and when each governs.
A CRE asset has at least three valuations at any moment: a direct-capitalization value (NOI ÷ cap rate), a DCF value (the present value of an explicit hold-period cash flow plus reversion), and a replacement-cost value (the cost to build it new today). Institutional underwriting carries all three because each picks up a different aspect of risk — current yield, hold-period growth, and the structural floor. The cap rate itself is not a single number; it decomposes into a risk-free rate, a risk premium with several sub-components, and long-run NOI growth, and the going-in versus exit spread is the single highest-leverage input in a hold-period model.
These eight articles walk that toolkit from the inputs up. Start with the cap rate or NOI calculator if you are sizing a deal. Start with DCF vs direct cap if you are deciding which methodology to lead with. Each piece includes the formula, the 2026 institutional conventions, and the practitioner mistakes that quietly move valuations 25 bps or more.
8 articles
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Cap Rate Calculator and Formula: A Practitioner's Guide
Free cap rate calculator plus a complete institutional guide: the formula and its rearrangements, the Gordon Growth decomposition, going-in vs. exit cap, asset-class benchmarks, and seven mistakes practitioners make.
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NOI Calculator and Formula: Net Operating Income for Commercial Real Estate (Line-by-Line)
Free institutional NOI calculator with the full nine-line operating-expense stack, a side-by-side Broker NOI vs Institutional NOI comparison, asset-class opex-ratio benchmarks, and the 2024–2026 insurance and property-tax inflation overlay.
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Cap Rate Decomposition: Risk-Free Rate, Risk Premium, and the Gordon Growth Build
The institutional cap rate build-up — risk-free rate, sub-components of the risk premium (credit, illiquidity, structural, sponsor), and long-run NOI growth — derived from the Gordon Growth Model. Worked May 2026 multifamily example.
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Going-In vs Exit Cap Rate: The Spread, the Reversion, and the 2026 Underwriting Discipline
The exit cap rate is the single highest-leverage input in a hold-period underwrite. The going-in to exit cap spread modeled by hold period, cyclical positioning, and structural fundamentals, with a 3/5/7/10-year sensitivity grid.
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DCF vs Direct Capitalization: When Each Methodology Applies and Why It Matters
The institutional choice between direct capitalization and discounted cash flow analysis. Cap rate as input vs output, the mathematical identity at the limit, the 5% reconciliation rule, and a deal-type decision matrix.
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Terminal Value and Reversion: Exit Cap, Hold Period, and the Year 11 Forward NOI Convention
The institutional treatment of terminal value in a CRE DCF — Year 11 forward NOI ÷ exit cap, less disposition costs of 2.5–3.5% — plus the hold-period sensitivity that decides whether reversion is 60–75% of total return or 40–55%.
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NOI: Institutional vs Broker Calculation — The Definitional Differences That Move Cap Rates 25 BPS
Broker NOI and institutional NOI follow different conventions for T-12 vs pro forma, market vs in-place rent, capex reserves, management fee, and non-recurring items. A 5% NOI haircut at a 5% cap rate is a 25-bps cap-equivalent move.
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Replacement Cost Analysis: The Cost Approach, the Buy-Below-Replacement Thesis, and Insurance Valuation
The cost approach as the third valuation methodology beyond income and sales-comparison. Land, hard costs, soft costs, FF&E, contingency, and developer profit built up against the institutional 'buy below replacement' thesis.
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