InvestGroup is considering selling City Tower I, which has the following financials: NOI = $185,000 Current Loan Balance = $700,000 ADS $85,000 Investors are requiring a cash-on-cash rate of return of 6%. Three sales of comparable buildings have occurred in the past month: Sale 1: Sale Price = $1,515,000 NOI = $144,226 Sale 2: Sale Price = $1,402,500 NOI = $137,163 Sale 3: Sale Price = $1,561,000 NOI = $154,660 1. Calculate the average capitalization rate from comparable sales. Cap Rate #1 = 144,226/1,515,000 = 9.52% Cap Rate #2 = 137,163/1,402,500 = 9.78% Cap Rate #3 = 154,660 / 1,561,000 = 9.91% Average Cap Rate = (9.52 + 9.78 +9.91)/3 = 9.74% 2. Loans are typically available at 80% of value. The current loan constant is 10.48% Use mortgage-equity analysis to determine the capitalization rate. 3. Compare these two methods of deriving capitalization rates. The mortgage-equity analysis is more precise for this property. Use the capitalization rate to find the market value of City Tower