Document Type

Marquette Only

Language

eng

Publication Date

7-1993

Publisher

Appraisal Institute

Source Publication

Appraisal Journal

Source ISSN

0003-7087

Abstract

Commercial real estate investment is motivated by a changing combination of three investment benefits: cash flow, appreciation, and tax shelter. Although the relative importance of the three benefits of real estate has shifted significantly, the direct capitalization method of real estate valuation has remained unchanged, only valuing the cash flow portion of real estate. This article reviews the financial theory and limiting assumptions of direct capitalization. Using real estate cash flow examples, the article reveals that the internal rate of return does not equal the capitalization rate plus a growth rate (Y < R + g).

Comments

Published version. Appraisal Journal, Vol. 61, No. 3 (July 1993): 419-425. Publisher link. Reprinted with permission from The Appraisal Journal July 1993. ©1993 by the Appraisal Institute, Chicago, Illinois. All rights reserved.

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