Estimating constant-quality capitalization rates and capitalization effects of below market financing

Using data on 403 property transactions in Stockholm in the early 1990s, we illustrate how a microdata base can be used to compute 'constant-quality' cap rate series. We show a wide disparity between apartment and commercial series so calculated and series computed as simple averages of individual property cap rates. In the process, we find evidence of full capitalization of below-market financing in apartment prices.