August 1996, Vol 21, No 2
Abstract: Real Estate capitalization rates vary more by property type than over the real estate cycle. The tendency to cycle around some constant has been a source of much discussion and misunderstanding. Investor surveys of expected returns tend to confirm this phenomenon and paradox. In bifurcating the capitalization rate into two separate components, this article illustrates it is possible for capitalization rates to be highly inelastic with respect to changing market conditions.