How do I get the blended cap rate?

Hey

Lets say I have a property that throws off $1,440,500 a month in gross in come for residential and $26,700 in gross income for retail. The cap rate for residential is 4.75% and retail is 5.5%. How would you blend these cap rates to show the one blended cap rate in excel?

Thanks

 

I think this is definitely on a case by case basis. If I'm underwriting something with a larger retail piece, I prefer to do it as a sum of the parts. I've done it both ways with a bifurcated cap rate and with just baking the retail NOI piece (generally smaller that 5,000 sf) in as an income line item.

I like to think of them separate sometimes to plan for TIs/LCs and other unique situations. This is my perspective (equity side) and not how everyone does it, and not even I do it this way all of the time. I'm sure lender's look at it differently.

 

Wouldn't you just value the two separately as you did to get a total valuation of $30,811,700? This approach would yield a blended cap equal to total NOI/total valuation = 4.76%. This is indeed equivalent to 98.18% * 4.75% cap + 1.82% * 5.50% cap...

 

I mean I understand that if I take each portion's NOIs and divde by the blended cap rate, then I will get the 30,800,235. I just want to double-check my work which is why I am taking each portion's respective NOI's and dividing by their respective cap rates. I'm just not arriving at the same results.

 

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