If a shopping center sold for $10,000,000 with a Net Operating Income of $875,000, what is the Cap Rate?

To determine the Capitalization Rate (Cap Rate) for the shopping center, the formula is used as follows:

Cap Rate = Net Operating Income (NOI) / Purchase Price

In this scenario, the shopping center has a Net Operating Income (NOI) of $875,000 and was sold for $10,000,000. Plugging these values into the formula gives:

Cap Rate = $875,000 / $10,000,000

Cap Rate = 0.0875 or 8.75%

This means that the Cap Rate, which is a commonly used metric in real estate to evaluate the profitability of an investment property, is 8.75%. A higher Cap Rate would typically indicate a higher risk and potential return on investment, while a lower Cap Rate may suggest a more stable but lower return.

Therefore, the answer of 8.75% accurately calculates the Cap Rate using the provided figures, making it the correct choice.