A capitalization rate is the ratio of stabilized NOI to property value at a given point in time. For NYC commercial real estate it's the most-quoted, most-misunderstood metric in the industry. Used correctly it's an essential triangulation tool; used carelessly it produces fake precision and bad bids.
Going-In vs Stabilized vs Exit
Three different cap rates appear in every underwriting model. The going-in cap is acquisition NOI ÷ purchase price; the stabilized cap is post-business-plan NOI ÷ basis at stabilization; the exit cap is year-N NOI ÷ disposition price. The relationship matters: a 5.0% going-in to a 6.0% stabilized is value destruction. A 4.5% going-in to a 5.5% stabilized at year 3 with a 5.0% exit at year 7 is the value-add target.
Manhattan Cap Rate Ranges (Q1 2026)
Trophy Park Avenue Class A office: 5.0-5.5%. Plaza District Class A: 5.0-5.5%. Times Square Class A: 5.5-6.5%. Grand Central Class A: 5.25-6.0%. Hudson Yards Class A: 4.75-5.5%. Manhattan multifamily (rent-stabilized): 4.0-5.0%. Manhattan multifamily (free market): 4.5-5.5%. Free-market high-street retail: 4.5-5.5%. Office-to-residential conversion candidates trade at headline cap rates that ignore the conversion thesis — the real economics come from the stabilized residential exit cap.
Comp-Derived vs DCF-Derived
Comp-derived cap rates are the closing prices from recent ACRIS-recorded transactions, normalized for size, quality, location, and lease term. DCF-derived cap rates are the residual yield required to achieve the buyer's target IRR on the underwritten cash flows. The two should converge within ±50 bps; if they diverge widely, your comps are wrong or your DCF assumptions are wrong.
- Always reconcile to recent ACRIS recordings; Skyline maintains an active ACRIS comp set for every Manhattan submarket.
- For value-add deals, separate the going-in cap (acquisition basis) from the stabilized cap (post-business-plan).
- Be skeptical of cap rates that "round" to clean numbers — real comps rarely sit at exactly 5.0%.
- Submarket cap-rate spreads compress in tight markets and widen when capital becomes scarce.
Robert Khodadadian and Skyline Properties have closed $976M+ in NYC commercial transactions and maintain submarket-specific cap rate intelligence sourced from live ACRIS recordings and the firm's active broker network. Email info@skylineprp.com for a confidential cap rate analysis on a specific asset.