Terminal cap rate is another term for exit cap rate — the cap rate assumed to apply at a property's future sale, used to calculate projected residual value.
Used in discounted cash flow and hold-period models. Typically modeled 25–50 basis points wider than going-in cap rate to reflect the conservatism expected by the time you're underwriting the future sale environment.
LA multifamily 2026 terminal cap rates: 4.0–5.0% on Westside premium post-1995, 5.0–6.5% on Valley pre-1978 RSO-constrained — reflecting the pricing divergence across cohorts. Aggressive terminal cap assumptions (below going-in) are rejected by most institutional LPs.
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