RE:RE:valuation modelBoth the management and the public market are right.
In the short run, the cap rate could indeed be 7% or more IF a private transaction occurs.
However, in the long run, premium Toronto office buildings deserve a 5% cap rate+ density potential.
It's all about interest rate my friend and weather buying an office building makes business sense in the current environment (mortgage rate of 6.1% for commercial loans) . So definitely, the cap rate has to be 6% at least if we factor in potential interest cuts.
On the other hand, the management's belief in 5% cap rate is very reasonable when office real estate stablizes itself.
Trading D.UN is like trading a bond. Macro is very important as well as the micro. At the end of the day, you should consider yourself as a private buyer and see which cap rate makes sense to you in the current environment.