Real Estate Cases 2026: The Cap Rate Does the Work

The one real estate case a firm publishes

Deloitte hosts a valuation case, and its content is instructive before you reach any arithmetic. The situation reads: "A real estate client owns a large portfolio of industrial warehouses located throughout the Midwest. The company has reached out to Deloitte to create an opinion of value on a property in their portfolio", checked 30 September 2026 at usrecruiting.deloitte.com.

The property is described in four facts: "The subject property is a 45,000 square foot industrial facility located in a mid-sized town. It is directly off of Interstate 90, which provides for easy access to the Chicagoland region. It was built in 2016 and is 100% occupied by a single tenant. Their lease terms end in 2031."

Then the case asks four questions and none of them requires a calculation. It asks for the methodology and what makes industrial valuation distinctive, for the characteristics of comparable properties, for the effect of the long single tenant lease, and for how to present results to the client. Its estimated completion time is 15 to 20 minutes.

That is a published convention worth internalizing. A large firm treats a valuation as a methodology conversation. Its suggested answer names a "Combination of cost approach" alongside the other methods and points at features like loading docks. No rent, no cap rate, no value.

So prepare for both possibilities. The property below uses Deloitte's four stated facts and adds our own assumptions, labeled as such, so that the arithmetic exists for practice.

Three real estate valuation approaches, and what each needs

Commercial valuation has three standard approaches, and a case rewards knowing which one the available data supports.

For a single tenant industrial box with a lease running to 2031, the income approach carries the answer and the other two discipline it. The cost approach is the useful check, because a warehouse in a mid-sized town can easily be worth less than it would cost to replace, and when that is true the income figure is the ceiling rather than the floor.

Say which approach you are leading with and why. That sentence alone answers Deloitte's first question, and it is the part candidates skip in favor of listing all three.

Working the income approach on the published property

Here is the arithmetic. The 45,000 square feet is Deloitte's figure. Everything else is ours, posed as an assumption out loud.

1. Area. 45,000 square feet.
2. Net rent. $7.20 per square foot a year, triple net, so the tenant pays taxes, insurance and maintenance.
3. Vacancy allowance. Zero inside the lease term, since the building is 100 percent let to 2031.
4. Non-recoverable owner cost. $30,000 a year for structural reserve, management and the insurance deductible.
5. Cap rate. Built from a published risk free rate plus a spread, below.

Gross rent is 45,000 times $7.20, which is $324,000. Net operating income is $324,000 minus $30,000, so $294,000.

Now the cap rate, and this is where a case answer becomes defensible rather than invented. The US Treasury daily yield curve puts the 10 year yield at 5.26 percent on 29 September 2026, checked 30 September 2026 at treasury.gov. Add 250 basis points for an industrial single tenant asset in a secondary location and the cap rate is 7.76 percent. The spread is ours; the 5.26 percent is published and dated.

Value is $294,000 divided by 0.0776, which is $3,788,660. Per square foot that is $3,788,660 over 45,000, so $84.19.

The two sensitivities, and which one you control

A valuation is only as good as the pair of numbers underneath it, so test both and compare them honestly.

Read the middle two rows against each other. One hundred basis points of cap rate expansion costs 11.4 percent of value. A full 10 percent rise in rent gains 11.0 percent. Those are nearly the same magnitude, and only one of them is inside the owner's control.

That comparison is the sentence an interviewer is waiting for. The owner can work the rent, the tenant covenant and the lease structure. The cap rate arrives from the bond market, and the Treasury series shows how fast it moves: the 10 year yield was 4.19 percent on 2 January 2026 and 5.26 percent on 29 September, a rise of 107 basis points in nine months. On this property, a move of that size is worth more than a hard won rent review.

Be careful with the claim, though. A rising risk free rate does not translate one for one into cap rates, because spreads compress and widen independently. What the arithmetic establishes is the sensitivity, and what the Treasury data establishes is that the input has been moving by amounts that matter.

Pricing the lease expiry in Deloitte's real estate case

Deloitte's third question asks how the long single tenant lease affects the valuation, and its suggested answer gives both halves. On the positive side: "The long-term lease agreement with a single tenant enhances the stability and predictability of income for the subject property." On the other: "Acknowledge potential risks associated with a single tenant, such as dependency on their financial and operational success."

The firm does not price either half. Here is how to, on our assumptions.

The lease runs to 2031, so from 30 September 2026 it has roughly five years left. The reversion question is what the rent resets to. Suppose market rent at reset is 15 percent below the in-place rent. New rent is $7.20 times 0.85, which is $6.12 per square foot. Gross rent becomes 45,000 times $6.12, so $275,400. Net operating income becomes $245,400, and value at the same 7.76 percent cap rate becomes $3,162,371.

Against the in-place value of $3,788,660, that is $626,289 lower, which is 16.5 percent of value.

Now say what that number shows, and say it narrowly. The same tenant that produces five years of certain income is the entire source of the reversion exposure, and on these assumptions the exposure is worth 16.5 percent of the asset. It is larger than either sensitivity in the previous table. A valuation that reports stability without pricing the reversion has answered half of Deloitte's own question.

The practical follow-up is a credit question rather than a property question. Ask who the tenant is, what its covenant looks like, and whether the lease has a break clause before 2031. A five year certain income from a weak covenant is not five years of certain income.

The vacancy rate this real estate case cannot use

One trap deserves naming, because published data invites it.

The Census Bureau reports that "National vacancy rates in the second quarter 2026 were 7.3 percent for rental housing and 1.2 percent for" homeowner housing, with a homeownership rate of 65.0 percent, checked 30 September 2026 at census.gov. The release notes that the data are not adjusted for seasonality.

Those figures are residential. The subject property is a single tenant industrial box, and its vacancy is either 0 percent or 100 percent with nothing in between. Applying a 7.3 percent allowance to it would be arithmetically tidy and conceptually wrong, because a single tenant asset has no portfolio inside it to average across.

The correct treatment is a downtime assumption at reversion. If the tenant leaves in 2031 and the space takes nine months to re-let, that is nine months of zero rent plus leasing costs, and it belongs in the reversion case rather than as a percentage haircut on current income.

That distinction is exactly what makes a real estate case different from a market sizing case. A published national average is the right input for a portfolio and the wrong input for one building, and knowing which you are holding is the skill.

Ask which threshold the real estate buyer underwrites

An opinion of value answers what a property is worth. It does not answer whether to buy it, and those are different questions with different bars.

Published cases show how far the bars diverge. Oliver Wyman's practice case declines a business that earns money every year, because entry "does not align with the client's investment criteria for a five-year payback period", checked 30 September 2026 at oliverwyman.com. Deloitte's valuation case asks for a value and never asks for a decision at all.

So open by asking what the client is underwriting. Three bars are common, and they rank the same property differently.

1. Yield on cost. Net operating income over purchase price plus capital expenditure. On the base case, $294,000 over $3,788,660 is 7.76 percent by construction.
2. Cash on cash. The same income after debt service, over equity invested. With 60 percent debt at 6.5 percent, interest is $2,273,196 times 0.065, so $147,758, leaving $146,242 on $1,515,464 of equity, which is 9.65 percent.
3. Total return over a hold period. Income plus the change in value at exit, which is where the reversion arithmetic above becomes the deciding term.

Note what leverage did in the second row. It raised the return from 7.76 percent to 9.65 percent and it also made the reversion loss fall entirely on a smaller equity base. The $626,289 reversion exposure is 16.5 percent of the asset and 41.3 percent of the equity, since $626,289 over $1,515,464 is 0.4133. Leverage does not change the property. It changes who absorbs the swing.

Where the points go on a valuation case

The scheme below is ours. Its dimensions and weights are read from the grading code in src/lib/grading, and since no consulting firm publishes a marking scheme for a case interview, none of this is any firm's official standard.

Where the record stops

We looked for a first-hand candidate account of a real estate case and found nothing citable. Reddit refuses connections from this network, and the session had no video transcript tooling. Deloitte publishes a tips video on its case page and no account of any specific case. Competitor preparation blogs cover valuation cases and are not citable sources.

Five figures a case needs are not in the public record we could reach. Deloitte publishes four facts about the property and no rent, no cap rate and no value, so every one of those above is ours. No primary source we read publishes cap rates for US industrial assets, which is why the rate here is built from a dated Treasury yield plus a spread we declare. The Census Bureau publishes residential vacancy and we found no public equivalent for industrial, so this page says the residential figure does not transfer rather than transferring it. The tenant's covenant in the published case is unstated, and it is the single largest determinant of the reversion. And no firm publishes a hurdle rate for approving a property acquisition.