Which factors can affect a property's cap rate?

The cap rate, or capitalization rate, is a key metric used in real estate to assess the potential return on an investment property. It is influenced by various factors that relate to the property's income generation capabilities and its associated risks.

Tenant diversity is a significant factor affecting the cap rate because it indicates the stability of the tenant base. A property with a diverse set of tenants is generally seen as less risky because it is less dependent on a single tenant for income. If one tenant leaves, the impact on overall cash flow is diminished. Moreover, properties with stable, long-term leases can command lower cap rates, reflecting their perceived lower risk and more predictable income stream.

This contrasts with other factors listed in the choices. While construction materials, age, proximity to amenities like schools and parks, and the number of floors can influence a property's value, they do not directly relate to how well the property generates income or the stability of that income. Instead, they might affect operational costs or market attractiveness but would have a less significant impact on the calculation of the cap rate compared to tenant diversity and lease conditions.