A property generates $5M of NOI and trades at a 6.0% cap rate. What's the value? What if the cap rate compresses to 5.0%?

How to answer

Value = NOI ÷ Cap Rate. At 6.0%: $5M ÷ 0.06 = ~$83.3M. At 5.0%: $5M ÷ 0.05 = $100M. So 100 bps of cap rate compression raises value by ~$16.7M (+20%), with no change in NOI. This shows how sensitive RE value is to cap rate movement — the entire gain came from multiple expansion, not operations.

Key idea: $5M ÷ 0.06, then $5M ÷ 0.05.