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

I stopped arguing about exit caps and started asking what the debt looks like in year seven. If the deal survives a refinance at a cap 200bps wider than the model, the exit assumption is a distribution question rather than a survival question. If it doesn't, the cap rate argument is the whole deal and I pass. Your 5.75% against an 8% observed trade is a 30% value gap, which is more than most of these have in cushion.

Also check whether you can even see those trades. Whether sale prices are public depends on the state, and roughly a dozen don't disclose them at all, so in those markets your 8% comp came from a broker's recollection or a CoStar entry someone typed. I'd want to know which.

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.

I'm asking because I don't know the answer here. If the ten year hold is what produces the tax outcome, doesn't every buyer of one of these have the same eleven year horizon and the same problem? Feels like the pool of people who want to buy at year eleven is people who want to start their own clock, and they'd rather buy something they can improve. Which argues the wrong way for the sponsor's story. I don't know how you'd model that.