How does anyone underwrite a ten year exit where there are no comps?

The more useful question is usually what the debt looks like in year seven rather than arguing the exit cap in isolation. If a deal survives a refinance at a cap 200 basis points wider than the model, the exit assumption becomes a distribution question rather than a survival question. If it doesn't survive that stress test, the cap rate argument is the whole deal. An underwritten exit of 5.75 percent against an observed trade of 8 percent is roughly a 30 percent value gap, which is more cushion than most of these structures carry, so that gap deserves more weight than a sponsor's story about a changing buyer pool.

Also check whether those trades are even visible. Whether sale prices are public depends on the state, and roughly a dozen don't disclose them at all, so in those markets an 8% comp may have come from a broker's recollection or a CoStar entry someone typed rather than a recorded sale. Worth knowing which before leaning on it.

The part of the sponsor's story I'd test is the rent, not the cap. A cap rate applied to an unachievable NOI is two errors stacked. Ask what rent per foot the model needs in year three and go price four comparable listings in that tract yourself. If the required rent is already above the top of the market before the neighborhood turns, the exit debate is over.

Fair question, and the answer isn't obvious. If a ten year hold is what produces the tax outcome, every buyer of one of these has the same eleven year horizon and the same problem. That argues the pool of buyers at year eleven is people who want to start their own clock, and who would rather buy something they can improve. Which argues the wrong way for the sponsor's story. Modeling that exit buyer pool honestly is genuinely difficult, and skepticism toward a clean 5.75 percent cap assumption is warranted until the sponsor can name who's actually buying at year eleven.