Property Valuation
In appraising a Pennsylvania shopping center, the appraiser uses the 'band of investment' method to derive the overall capitalization rate by:
AUsing only the equity return requirement
BWeighting the mortgage constant and equity capitalization rate by their respective proportions of the investment✓ Correct
CAveraging published cap rates for all Pennsylvania retail properties
DUsing the lease rate divided by the property value
Explanation
The band of investment method calculates an overall cap rate by weighting the mortgage component (mortgage constant × LTV ratio) and the equity component (equity cap rate × equity ratio). This approach reflects that real estate investments are typically financed with both debt and equity, each with different return requirements.
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