Valuing Illiquid Real Property: The Pitfalls of Yield Capitalization
The Journal of Property Tax Management, Vol 6, Issue 4, Pages 43-56, 1995
Posted: 20 May 2014
Date Written: Spring 1995
Yield capitalization is frequently used to value illiquid real assets. Among other assumptions, it assumes securities have liquidity and risk profiles similar to tangible real assets. This allows using the CAPM to determine capitalization rates. However, the CAPM method of estimating cap rates has numerous problems, even when dealing with liquid securities. However, when estimating the cap rates required for valuing illiquid and unsecuritized real property, additional adjustments are needed.
Keywords: real assets, CAPM, capitalization rate
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