Terminal Value 2016-06-16 08:00:00

Terminal Value

The value of an investment at the end of its holding period. In the context of commercial real estate, the terminal value of an investment property is often estimated by applying a terminal cap rate to its projected net operating income (NOI) at the time of sale, or the year following sale.

For example, if an investment property has an anticipated holding period of 7 years, an investor may project the NOI of the property in year 8 to be $130,000. If the investor applies a 7.0% terminal cap rate, then the estimated terminal value would be $1,857,715 (NOI of $130,000 divided by terminal cap rate of 7.0%). Also known as the exit value.


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