Sensitivity Analysis: How Exit Cap Rate Moves Value

Sensitivity analysis holds NOI constant and flexes the exit cap rate to show how much value moves. Because value equals NOI ÷ cap rate, a small change in the exit cap is amplified — on this deal, a 50 basis-point move is worth roughly $790K to $930K of value.

The single most consequential assumption in most hold-and-sell models is the exit cap rate, because it sets the sale price years out when you have the least visibility. A sensitivity table isolates that risk: fix everything else, vary the exit cap across a plausible band, and read the value at each point. The spread tells you how exposed the deal is. The distinction between your entry and exit assumptions matters here — see the going-in vs. exit cap rate glossary entry.

Note that the steps are not linear. Because value is NOI divided by the cap, each downward tick in the cap rate adds progressively more value, and each upward tick subtracts progressively less. That convexity is exactly why exit-cap optimism is dangerous — assuming compression buys you a big number that may never materialize. Build the underlying NOI honestly first via the pro forma, then pressure-test the exit with a tool like the cap rate calculator.

Worked example — value vs. exit cap (NOI fixed at $613,800)

The math: value = NOI ÷ exit cap. $613,800 ÷ 0.055 = $11,160,000; ÷ 0.060 = $10,230,000; ÷ 0.065 = $9,443,000. The 5.5%→6.0% step costs $930K and the 6.0%→6.5% step costs ~$787K — a 50 bps move is worth roughly $790K–$930K here.

The discipline: never trust a single exit cap — table it across a band and underwrite to the conservative end.