Going-Out Cap Rate

How Going-Out Cap Rate Is Used

The going-out cap rate is applied to stabilized exit-year NOI to compute terminal value:

Terminal Value = Year-N NOI / Going-Out Cap Rate

Example: Florida multifamily acquired at 6.0% going-in cap rate, exit year (year 5) NOI projected at $450,000, going-out cap rate 6.50% → Terminal Value = $450,000 / 0.065 = $6,923,077. This terminal value flows into IRR and equity multiple calculations alongside annual cash distributions.

The going-out cap rate is the single most leveraged assumption in CRE underwriting. A 25 bps shift (from 6.50% to 6.75%) reduces the terminal value to $6,666,667 — a $256,000 difference (3.7%) that flows through IRR and equity multiple.

Why Going-Out Cap Rate Should Exceed Going-In Cap Rate

• Asset aging: A 1990-built building sold in 2030 is 5 years older and arguably less desirable than the same property in 2025
• Conservative principle: Forecasting future cap rates is inherently uncertain; the prudent direction of error is widening (higher cap rate, lower value)
• Time value of money: Distant future cash flows are worth less than near-term, supporting cap rate expansion across hold
• Buyer pool shifts: Year-5 buyer is a different person with different risk tolerance than today\'s buyer
• Standard FL CRE practice: going-out cap rate = going-in cap rate + 25-75 bps minimum; aggressive sponsors compress this gap, conservative sponsors widen it
• Industry standard: 50 bps spread is the most common assumption across Florida value-add and core-plus underwriting

Typical Florida CRE Going-Out Cap Rate Spreads by Asset Class

• Multifamily Class A: Going-in 4.5-5.5%, going-out 5.0-6.0% (50 bps spread typical)
• Multifamily Class B value-add: Going-in 5.5-6.5% on stabilized basis, going-out 6.0-7.0% (50 bps spread); year-1 going-in often shows higher due to vacancy
• Industrial: Going-in 5.0-6.5%, going-out 5.5-7.0% (50 bps spread); FL port-market industrial may use 25 bps
• NNN retail credit tenant: Going-in 5.5-7.0%, going-out 6.0-7.5% (50 bps spread); lease-roll risk supports wider spread on shorter remaining lease term
• Office: Going-in 7.0-9.0% (currently widened), going-out 7.5-10%+ (75 bps spread; reflects ongoing sector uncertainty)
• Hospitality: Going-in 8.0-10%+, going-out 8.5-11%+ (50-100 bps spread; cyclical exposure)
• Self-storage: Going-in 5.5-7.0%, going-out 6.0-7.5%

Going-Out Cap Rate Sensitivity Analysis

Sophisticated Florida CRE underwriting always presents a 3-by-3 sensitivity matrix: NOI growth (low/base/high) crossed with going-out cap rate (low/base/high). The base case is what sponsors market; the high cap rate / low NOI growth case is the conservative scenario; the low cap rate / high NOI growth case is upside.

Florida-specific sensitivity drivers: hurricane (NOI compression in storm year); insurance escalation (NOI compression year-over-year); interest rate expectations at exit (compresses or expands going-out cap rate); 1031 exchange demand (compresses going-out cap rate in years with high exchange capital seeking placement).

Going-Out Cap Rate in Florida Value-Add and Distressed Strategies

• Value-add strategy: Going-out cap rate should reflect post-stabilization sale to a core/core-plus buyer; appropriate going-out is the going-in for stabilized comparable, NOT the value-add going-in
• Distressed/REO strategy: Going-out cap rate applied to fully stabilized NOI (post-renovation, post-lease-up); may be 100-200 bps wider than going-in for the discount-to-stabilized acquisition
• 1031 exchange exit: Florida sellers selling into a 1031 exchange face replacement-property timing pressure — if 1031 demand is high at exit, going-out cap rate may compress (favorable to seller); if 1031 demand is low, going-out widens
• Insurance escalation impact: Florida exit NOI must reflect current insurance rates, not historical — selling on artificially-low insurance assumption produces buyer surprise and price compression
• Hurricane disclosure: Post-storm sales require disclosure; recently-storm-damaged properties trade at wider cap rates

Test Your Going-Out Cap Rate Assumption

Run sensitivity analysis on the cap rate exit assumption across multiple scenarios with the LGS pro-forma calculator and IRR / equity multiple model.

What is a Going-Out Cap Rate?

Going-Out Cap Rate (also called Exit Cap Rate, Terminal Cap Rate, or Disposition Cap Rate) is the assumed capitalization rate used to estimate the sale value of a commercial real estate investment at the end of a hold period. It is applied to projected stabilized NOI at exit to produce the terminal value that flows into IRR, equity multiple, and exit proceeds calculations. The Going-Out Cap Rate should virtually always be higher than the Going-In Cap Rate to reflect the time value of money, asset aging, and the conservative principle that future cap rates are uncertain.

How is Going-Out Cap Rate calculated?

Terminal Value = Exit-Year NOI / Going-Out Cap Rate. Example: A Florida multifamily property acquired at 6.0% going-in cap rate with exit-year NOI projected at $450,000 and going-out cap rate of 6.50% produces a terminal value of $450,000 / 0.065 = $6,923,077. This terminal value flows into IRR and equity multiple calculations alongside annual operating distributions during the hold period.

Why does Going-Out Cap Rate need to be higher than Going-In Cap Rate?

For four reasons: (1) the asset is older at exit, (2) the conservative principle says cap rate uncertainty should be modeled toward widening (higher cap rate, lower value), (3) the time value of money supports cap rate expansion, and (4) the year-5 buyer is a different person with different risk tolerance. Standard Florida CRE practice: going-out cap rate equals going-in cap rate plus 25-75 basis points minimum. Aggressive sponsors compress this gap; conservative sponsors widen it. 50 bps spread is the most common assumption.

What is a typical Going-Out Cap Rate for Florida multifamily?

Florida multifamily Class A: going-in 4.5-5.5%, going-out 5.0-6.0% (50 bps spread typical). Florida multifamily Class B value-add: going-in 5.5-6.5% on stabilized basis, going-out 6.0-7.0% (50 bps spread); the year-1 cap rate often appears higher due to vacancy and value-add execution risk. Aggressive sponsors compress the spread to 25 bps; conservative sponsors widen to 75-100 bps.

How does Florida hurricane risk affect Going-Out Cap Rate?

Florida-specific factors that should widen the going-out cap rate vs national average: hurricane risk (cyclical sale-year storm events compress buyer pool and widen cap rates); insurance escalation (forward NOI must reflect current insurance rates, not historical); property tax reassessment on sale (Save Our Homes does NOT apply to commercial; first-year tax for buyer steps up). Florida exit NOI must reflect current insurance + current property tax assumptions to avoid buyer surprise and price compression.

Who can help me underwrite Going-Out Cap Rate on my Florida deal?

Michael R. Linton at Linton Global Solutions models going-in and going-out cap rates with full sensitivity analysis on every Florida CRE underwriting across multifamily, office, industrial, retail, hospitality, land, mixed-use, special-purpose, self-storage, and life sciences. With 39 years of closed Florida CRE transactions and intimate familiarity with current Florida cap rate spreads by submarket, Linton Global Solutions delivers exit cap rate assumptions grounded in actual closed comparable sales, not theoretical models. Call (312) 612-1031.

Article Summary

Going-Out Cap Rate is the assumed exit cap rate applied to projected stabilized NOI at the end of a hold period to compute terminal value. Should always exceed going-in cap rate by 25-75 bps minimum (50 bps standard) to reflect asset aging, time value of money, and conservative uncertainty principle. Florida-specific drivers widening going-out spreads: hurricane risk, insurance escalation, property tax reassessment on sale. Florida benchmarks: multifamily Class A 5.0-6.0%; Class B value-add 6.0-7.0%; industrial 5.5-7.0%; NNN credit retail 6.0-7.5%; office 7.5-10%+; hospitality 8.5-11%+. Sensitivity analysis essential. Mike Linton models exit cap rates with full sensitivity on every FL CRE underwriting.

Key Takeaways

• ✓Terminal Value = Exit-Year NOI / Going-Out Cap Rate.
• ✓Should exceed going-in cap rate by 25-75 bps minimum.
• ✓50 bps spread is the FL CRE standard assumption.
• ✓FL multifamily Class A going-out: 5.0-6.0%; Class B: 6.0-7.0%.
• ✓25 bps shift in going-out can change IRR by 5-10%.
• ✓Exit NOI must reflect current insurance + property tax rates.
• ✓Value-add exit cap = core/core-plus going-in cap for comparable.
• ✓Sensitivity matrix essential: 3x3 (NOI growth × cap rate scenarios).
• ✓Hurricane disclosure required on post-storm Florida sales.

About Michael R. Linton

Michael R. Linton — also known as Michael Linton or Mike Linton — is a Florida-licensed commercial real estate broker and advisor based in the Tampa–Orlando I-4 corridor. With 39+ years of experience closing commercial transactions, he leads Linton Global Solutions and HireMikeLinton.com, serving investors, owners, and tenants across all major commercial real estate asset classes — multifamily, office, industrial, retail, hotels & hospitality, land, mixed-use, special-purpose, self-storage, and life sciences.

Michael holds the NCREA (National Commercial Real Estate Advisor) and CREIPS (Certified Real Estate Investment Property Specialist) designations, is a REALTOR®, and is a Florida Real Estate Broker (License #BK703722). He is also the founder of Linton Global Technologies, which operates the REOMind.ai AI-powered REO disposition platform serving 500+ banks.

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Works Cited

1. Appraisal Institute. "The Appraisal of Real Estate (15th Edition)." Appraisal Institute, https://www.appraisalinstitute.org/. Accessed Jul 20, 2026.
2. Real Estate Research Corporation. "RERC Real Estate Report — Cap Rates." RERC, https://www.rerc.com/. Accessed Jul 20, 2026.
3. CCIM Institute. "CCIM Cap Rate and Valuation Methodology." CCIM, https://www.ccim.com/. Accessed Jul 20, 2026.
4. National Council of Real Estate Investment Fiduciaries. "NCREIF Property Index Cap Rates." NCREIF, https://www.ncreif.org/. Accessed Jul 20, 2026.

Disclosure & Compliance

Disclosure: This article discusses proprietary technology developed by Linton Global Technologies. Michael R. Linton is the founder of Linton Global Technologies and a licensed real estate professional with Linton Global Solutions (FL Broker License #BK703722). This content is for informational purposes only and does not constitute investment, legal, or financial advice.

Compliance Statement: All CREDDS and REOMind.ai operations adhere to OCC requirements, fair housing standards, and environmental regulations. Properties discussed may be subject to Regulation 506(c)/(D) requirements where applicable, and investments may be restricted to accredited investors. Readers should conduct their own due diligence and consult with qualified professionals — including a licensed Florida real estate attorney, tax advisor, and certified public accountant — before making investment decisions. Past performance does not guarantee future results.