Exit cap rate is the cap rate an underwriter assumes will apply at future sale, typically used to calculate residual value in a hold-period model. Exit caps are usually modeled wider than going-in caps.
Because cap rates vary over time with interest rates and buyer pool depth, projections typically assume the exit cap will be somewhat wider than the going-in cap — a conservative adjustment. A deal bought at a 4.5% going-in cap might be underwritten with a 4.75% exit cap.
LA multifamily exit cap assumptions in 2026 are running 25–50 basis points wider than going-in caps for most deals. This reflects both regulatory trajectory (RSO tightening) and rate environment uncertainty. Exit cap assumptions below going-in cap rates are aggressive and often rejected by institutional underwriting.
From the Sterman LA Multifamily Glossary — defined the way a broker with $1.41 billion across 254 closed transactions actually uses these terms.
Michael Sterman, Senior Managing Director Investments, Marcus & Millichap.
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