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Capitalization Rate Analysis <br /> We have used three methods to estimate a capitalization rate applicable to the estimated <br /> stabilized NOI for the subject: the band of investment method, a review of investor surveys and <br /> an analysis of capitalization rate comparables. <br /> Capitalization Rates from Band-of-Investment Method <br /> Most properties are purchased with financing and equity; therefore, the overall capitalization <br /> rate must satisfy the market return requirements of both investment positions.The lender must <br /> anticipate a rate of return that is appropriate for the investment's perceived risk in order to make <br /> the loan;the loan principal is typically repaid through periodic amortization payments.The equity <br /> investor must also anticipate a rate of return that is commensurate with the investment's <br /> perceived risk or they opt for an alternative investment. Therefore, we analyze capitalization <br /> rates for debt and equity. <br /> BAND • CAPITALIZATION RATE <br /> MORTGAGE COMPONENT <br /> Mortgage Rate 4.50% <br /> Amortization Term (Years) 20 <br /> Number of Payments 240 <br /> Loan-to-Value Ratio (M) 75.00% <br /> Mortgage Constant (Rm) 7.59% <br /> EQUITY COMPONENT <br /> Equity Ratio (E) 25.00% <br /> Equity Dividend Rate (Re) 14.00% <br /> RO BY BAND OF INVESTMENT <br /> Mortgage Ratio 75.00% <br /> Annual Mortgage Constant 7.59% <br /> Mortgage Component 5.69% <br /> Equity Ratio 25.00% <br /> Equity Dividend Rate 14.00% <br /> Equity Component 3.50% <br /> Indicated • •. <br /> 102 Page <br />