A commercial property owner is considering selling a strip mall in Kelowna with a current Net Operating Income (NOI) of $450,000. Similar properties recently sold at cap rates between 6.5% and 7.25%. The owner plans to secure a new 10-year lease with a national grocery chain as an 'anchor tenant' before listing the property, which is projected to increase the NOI to $520,000 due to higher rent and increased foot traffic for other tenants. Assuming the anchor tenant also reduces the perceived risk, thereby compressing the expected cap rate for the property to 6.0%, what would be the most likely impact on the property's value after securing the anchor tenant?

Question: A commercial property owner is considering selling a strip mall in Kelowna with a current Net Operating Income (NOI) of $450,000. Similar properties recently sold at cap rates between 6.5% and 7.25%. The owner plans to secure a new 10-year lease with a national grocery chain as an 'anchor tenant' before listing the property, which is projected to increase the NOI to $520,000 due to higher rent and increased foot traffic for other tenants. Assuming the anchor tenant also reduces the perceived risk, thereby compressing the expected cap rate for the property to 6.0%, what would be the most likely impact on the property's value after securing the anchor tenant?

Answer options:

• The value would decrease significantly due to the market's current cap rate range being higher.
• The value would remain largely unchanged despite the NOI increase. ✅ The value would increase from approximately $6,200,000 to $8,666,667.
• The value would increase to $7,200,000 but not exceed $8,000,000.

Correct answer: The value would increase from approximately $6,200,000 to $8,666,667.

Explanation: The value is calculated as NOI / Cap Rate. Before anchor tenant: $450,000 / 0.0725 (highest end of range for cautious estimate) = $6,206,896. After anchor tenant: $520,000 / 0.06 (new compressed cap rate) = $8,666,667. This represents a significant increase in value.