IB INTERVIEW FOUNDATIONS
Real estate valuation
Separate property economics from the mortgage structure.
A capitalization approach converts stabilized unlevered NOI into property value using an appropriate cap rate. Equity value also depends on financing claims. A plausible result depends on whether NOI is sustainable and what recurring investment or risk the approximation leaves out.
Ask yourself: How much confidence should you put in the stabilized NOI and cap rate?
Put it into practice
Practise the simple cap-rate bridge, then discuss occupancy, leases, recurring capex and refinancing risk.
Beyond the calculation
State assumptions before calculating. Explain the result in plain English, then identify what information could change your conclusion. A numerical match alone does not show that your reasoning is sound.