Cap Rate Sensitivity Matrix

See what a quarter point on the cap rate does to value, and what a five percent swing in income does beside it.

Baseline Annual NOI

Baseline Cap Rate

Target LTV

Stress-test property value and debt proceeds across cap rate shifts and income swings to evaluate market risk and exit returns.

Implied property value by cap rate and net operating income
NOI value	6.50%	6.75%	7.00%	7.25%	7.50%
$220,500 -10%	$3,392,308	$3,266,667	$3,150,000	$3,041,379	$2,940,000
$232,750 -5%	$3,580,769	$3,448,148	$3,325,000	$3,210,345	$3,103,333
$245,000 0%	$3,769,231	$3,629,630	$3,500,000	$3,379,310	$3,266,667
$257,250 +5%	$3,957,692	$3,811,111	$3,675,000	$3,548,276	$3,430,000
$269,500 +10%	$4,146,154	$3,992,593	$3,850,000	$3,717,241	$3,593,333

Values as shown, with the stress range you picked.

$245,000 at 7.00% values the asset at $3,500,000. Each 25 basis point step is worth $120,690.

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How it is calculated

Value = NOI ÷ Cap Rate

One equation, walked in two directions. Every cell in the grid capitalizes that row’s net operating income at that column’s cap rate, so reading across shows what the market re-rating does to your price and reading down shows what a leasing win or a lost tenant does. The figures you enter sit at the center, highlighted, and everything around them is the same asset under a slightly different set of assumptions.

NOI: Net operating income: rental income less operating expenses, before debt service.
Cap rate: Going-in capitalization rate — NOI as a percentage of price. The unleveraged yield.
Basis point: One hundredth of a percent. A quarter-point cap rate move is 25 basis points, the increment markets actually trade in.

A worked deal example

$245,000 of net operating income at a 7.00% cap rate, stepped 0.25% at a time across the columns and by income down the rows.

Net Operating Income: $245,000
Base Cap Rate: 7.00%
Cap Rate Step: 0.25%
Target LTV: 70.00%
Showing: Property value

The center cell is the deal as entered: $245,000 at 7.00% is $3,500,000 of value. Read across and a single 0.25% move — the smallest increment the market trades in — is worth $120,690. Two steps in the wrong direction takes the same income to $3,266,667, which is 6.67% of value gone without a single tenant moving out. Read down instead and the picture is gentler: a change in NOI moves value by the same percentage, because the relationship is linear in income and hyperbolic in the cap rate. That asymmetry is the whole argument for the grid. Underwriting a single cap rate tells you what the asset is worth if you are right; the corner — $2,940,000 — is the number worth being able to survive.

Key Deal Takeaway $120,690 per 0.25% step

Frequently asked questions

Why does a small cap rate move matter so much?

Because value is income divided by the cap rate, and division punishes small denominators. Going from a 7.00% to a 6.50% cap rate raises value by about 7.7%, but going from 5.00% to 4.50% raises it by 11.1% — the same fifty basis points, half again as much money. That is why cap rate compression drove so much of the returns in the last cycle and why expansion has hurt so much since: the arithmetic is not symmetric, and it bites hardest exactly where pricing is tightest.

Should I use a going-in or an exit cap rate here?

Both, separately. Run it with your going-in cap rate and today’s NOI to test what you are paying. Then run it again with your projected stabilized NOI and an exit cap rate — conventionally 25 to 50 basis points above going-in, because the asset is older at sale — to test what you expect to sell for. A model that uses the same cap rate at both ends is quietly assuming the market does you a favor by staying still.

Does this account for financing?

No. Every figure here is unleveraged: value is NOI over a cap rate with no mortgage in it. That is deliberate — cap rates are the language buyers use to compare assets before debt, and mixing financing into the grid would make every cell depend on a rate and an amortization you would then have to hold constant. To size a loan against these values and see the coverage and cash-on-cash they produce, use the Commercial Real Estate Investment Calculator.

Why does the matrix show property value rather than a return?

Because value is what a cap rate is for. A cap rate is not a forecast of performance, it is a price — the yield the market currently demands for that income stream — so the honest output of moving it is a different price, not a different return. Returns need a holding period, a financing structure and an exit assumption, none of which belong in a grid meant to be read at a glance.

Can I download the sensitivity table for Excel?

Yes. The Download CSV button under the grid saves the table exactly as shown, with the cap rate steps and income swings you picked, and Excel or Google Sheets opens it directly. That gives you a ready-made cap rate sensitivity table for a deal memo or loan request without building the two-way data table by hand.

What a sensitivity grid is for

A single valuation answers "what is it worth if I am right". A grid answers the more useful question: how wrong can I be before this stops working. Those are different questions and only one of them is decision-relevant, because nobody buys an asset confident their cap rate assumption is exact.

Read across and you are testing the market: what a re-rating does to your price without a single tenant moving. Read down and you are testing the asset: what a leasing win or a lost anchor does at a constant cap rate. The corners are where the decision actually lives — the top-right cell, weaker income at a wider cap rate, is the number a deal has to survive rather than the center one.

Choosing a stress range

The default holds fifty basis points either side of your assumption, which covers an ordinary shift in sentiment or a modest disagreement with a broker. That is the right band for asking whether a deal is robust. It is not the right band for asking whether it survives a cycle: cap rates on many asset classes moved 150 basis points or more between 2021 and 2023. Widen the step to 0.50% or 1.00% and the grid spans that.

0.10% steps — fine-grained pricing work. Useful when negotiating within a narrow band, or converting a bid-ask spread into dollars.
0.25% steps — the default, and the increment the market actually trades in. One step is the smallest move worth discussing.
0.50% and 1.00% steps — cycle stress. If the deal only works within a quarter point of your assumption, the honest conclusion is that you are underwriting the market rather than the building.

Switching to loan proceeds

The same grid read as debt answers a different question: how much does a re-rating cost me in financing, not just in equity value. Proceeds scale linearly with the target leverage, so the loan view is the value view multiplied through — but seeing it in dollars matters when the gap between what you assumed and what funds is equity you have to source. On a refinance, where there is no purchase price and the appraisal governs, that gap is the entire risk.

Estimates only. This calculator is an educational tool, not financial advice, a loan offer, or a commitment to lend. Actual payments, loan sizing and closing costs depend on your lender's underwriting, the day-count convention in your loan documents, and fees not modeled here. Confirm any figure with your lender or advisor before acting on it. For an official reference, see Commercial Real Estate Lending (Comptroller’s Handbook, Office of the Comptroller of the Currency).

Published by RealPropTools · Commercial real estate underwriting tools Updated October 29, 2026