# Comps vs DCF Reconciliation The sales-comparable approach indicates a value of $6,886,460 ($191,291 per unit), while the DCF analysis supports a value of $7,021,222, representing a gap of $134,762 or 1.95%. This modest divergence suggests strong alignment between market-derived pricing and the property's income-generating capacity under base-case assumptions, with the DCF premium reflecting the model's embedded 3.00% annual rent growth and exit cap rate compression to 6.00%. The DCF's reliance on terminal value—which comprises 76% of total value at $7,648,733—introduces meaningful sensitivity to exit assumptions, particularly the 9-basis-point spread tightening from the 6.09% going-in cap rate. In Houston's current multifamily market, characterized by robust job growth in the energy and medical sectors and continued population inflows, the modeled rent escalation appears achievable, though the exit cap assumption may prove optimistic if the Fed maintains elevated rates through the hold period. The asking price of $6,500,000 sits 7.42% below the DCF value and 5.61% below the sales-comp indication, positioning the acquisition at a meaningful discount to both valuation methodologies and providing downside protection against underperformance in rent growth or cap rate expansion. Given this dual-method support and the embedded margin of safety, the asking price is highly supportable and represents an attractive entry point for value creation through operational improvements and market rent capture.

# Deal Assessment vs Asking Price The asking price of $6,500,000 represents a **7.4% discount** to the DCF-derived value of $7,021,222, creating an attractive entry point approximately $521,000 below intrinsic value. To justify the asking price under the assignment's required 8.0% discount rate, rent growth would need to run at approximately **1.8% annually**—a conservative assumption well below Houston's recent multifamily fundamentals driven by continued in-migration from higher-cost markets and energy sector employment growth. Alternatively, to produce the comp-indicated value of $6,886,460 if rent growth is held at 3.0%, the discount rate would need to be reduced to approximately **7.3%**, reflecting a 70-basis-point compression that remains within reasonable bounds given the property's Inner Loop location and institutional-quality tenant base. Both scenarios appear reasonable: Houston's Galleria submarket has demonstrated resilient rent growth through multiple cycles, and the modest discount rate adjustment would simply reflect reduced execution risk for a stabilized, well-located asset. The going-in cap rate of 6.09% provides a healthy 162-basis-point spread over the 10-year Treasury, offering meaningful downside protection even if exit cap rates drift modestly higher to the projected 6.00%. Given the negative basis to both DCF and sales comps, strong market fundamentals in the San Felipe corridor, and the property's value-add potential through unit renovations, this deal prices **fair-to-light**. A negotiated price target of **$6,350,000 to $6,450,000** would provide additional margin of safety while remaining competitive in Houston's active multifamily acquisition market.

# Biggest Assumption & Sensitivity The exit cap rate assumption of 6.00% is the dominant driver of value, with every 50 basis points of exit cap expansion reducing DCF value by approximately 8–9%, or roughly $600,000–$650,000 on this asset. Terminal value accounts for 76% of the DCF-derived value, underscoring the outsized influence of exit assumptions on the investment thesis. Under forward-curve scenarios, a 50% pass-through of NOI growth yields the modeled 6.00% exit cap, while a 100% pass-through scenario pushes the exit cap to 6.18%, compressing value by approximately $400,000–$450,000 and narrowing the margin of safety. The key upside driver specific to Houston is the market's ongoing population and job growth in the Energy Corridor and Galleria submarkets, which have historically supported rent growth above the Texas average during periods of energy-sector expansion and corporate relocations. To justify the $6,500,000 asking price under a more conservative 6.25% exit cap, rent growth would need to accelerate to 4.0–5.0% annually rather than the modeled 3.0%, a scenario that is plausible if Houston's employment growth sustains above-trend momentum through 2026–2027. Given the 7.42% discount to DCF value and the asset's strong going-in cap rate of 6.09%, the deal becomes materially more attractive if the buyer underwrites even modest upside to the 3.0% rent growth assumption, particularly in light of Houston's favorable supply-demand dynamics in the Class B multifamily segment.