Cap rate (short for "capitalization rate") answers one question: if you paid all cash for this property today, what yield would you earn in the first year? The formula is simple —
A $2M property producing $180,000 a year in NOI has an 9.0% cap rate. Higher cap rate generally means either a cheaper price for the income it produces, or more risk priced in — a shorter lease, a weaker tenant, a tougher location. It's a starting signal, not a verdict.
Where the number on our deal pages actually comes from
We don't have access to every seller's real financials — nobody does, at this stage of a listing. So we use whichever of these applies, and we tell you which one you're looking at:
- Broker-stated. When the listing itself states a cap rate, we use it as-is.
- Tenant-benchmark estimate (retail). When a retail listing doesn't state one, we estimate it from published net-lease rent comparables for that tenant type.
- Property-type median estimate (industrial). Industrial listings rarely lead with a cap rate at all, so most industrial listings on the site carry an estimate. Rather than reach for outside institutional data — which skews toward large bulk-logistics assets, not the smaller, secondary-market buildings we cover — we take the median of the real broker-stated cap rates already in that cycle's own industrial batch, grouped by property type (industrial, flex, retail, or office building). It's an in-house benchmark, not a published source, and we recompute it fresh each cycle.
Either way, every estimate is flagged with an "EST." tag on the listing and an "(ESTIMATED)" label on the deal page — we'd rather show you an honestly-labeled estimate than quietly smooth over the gap.
Why it drives everything else on the page
Cap rate and price together are what let us back into Net Operating Income for a listing where we were never handed a full P&L (see the NOI guide). NOI is the number every other figure on the page — DSCR, stress DSCR, grade, target offer — is built from. Get the cap rate wrong or unlabeled, and everything downstream drifts with it.
The one thing cap rate alone won't tell you
A 9.5% cap rate and a 6% cap rate aren't automatically "good" or "bad" in isolation — they reflect different risk. That's exactly why we don't grade listings on cap rate by itself. We grade on stressed DSCR, which accounts for what happens to that income under a more conservative case.