An alternative method for arriving at a capitalization rate for a real estate investment. The buildup rate is the sum of all risks of an investment (denoted in percentage) plus the risk-free interest rate.

For example:

Risk-Free Rate (e.g. 10-yr UST): 2.25%

+

 Illiquid nature of investment: 0.75%

+

Credit risk of tenants: 1.25%

+

Inflation risk: 1.00%

+

And so forth…

=

Buildup rate: 5.25%

 

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