Interest rates will be rising in the next year or so and it is important to recall where they have been historically before the Fed started to manipulate the market. In the thirty years form 1977 to 2007 they averaged 7.597%. In the 21 years form 1987 to 2007 they averaged 6.19%. and since 1997 to 2007 it was 4.99%. It is important to note that the period form 2001 onward we one in which the Fed was pushing rates to artificially low levels and so there is a downward bias in the latter years. So if you look at 1987 to 2000 the average was 7.07%.

The point of all of this statistics is that when you think about exit values and cap rates five years, you need to understand that the ten year really can be at 6% or even higher, depending on your forecast for macro circumstances which could be in effect at that time. While none of us can predict what will be the situation in 2018, it is safe to say it will not be what it is today. There will be a new administration, the deficit may be far worse or maybe Washington actually did something about entitlement reform and deficit reduction. Maybe there was a war with Iran in 2013 and the Mideast exploded and oil is $200. Maybe a lot of things and black swans. We have no way to predict any of this with any reasonable degree of confidence.

It is probably safe to say if rates are still down near where they are today, then the economy is in really bad Japanese style deflation and we have much worse problems. Values would then be down far more from today's values. I doubt that will be the case and it far more likely that the economy will have revived, at least to some degree and rates on the ten year will have risen again. It may be that the dollar suffered excessively in the currency wars which currently are happening and the Fed has to raise rates to provide a floor for the dollar.