Expected Return on Cost Cap Rate

[Matthew Shay]

Hi,

I was looking through the North America Cap Rate survey for multifamily and they are using a cap rate called Expected Return on Cost Cap Rate for value add. There is another cap rate they use called cap rates for stabilized properties which i get but can anyone explain what is the former about? I included a screenshot. The reason I am asking is that I underwrite conservatively by adding a basis point for every year the property is held. So if we are holding the property for 5 years and the prevailing cap rate is 8% then I would use 8.5 for the cap rate on the resale