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Cap rate compression occurs when the capitalization rate for investment properties decreases, indicating that property values are rising faster than their net operating income (NOI), often driven by increased demand or lower interest rates.
The Terminal Cap Rate is the estimated capitalization rate used to project a property's sale price (reversionary value) at the end of a future holding period, a critical input in Discounted Cash Flow (DCF) valuation.
The Capitalization Rate (Cap Rate) is a real estate valuation metric used to estimate the potential rate of return on an investment property, calculated by dividing its Net Operating Income (NOI) by its current market value.