Valuation of Multifamily Real Estate Investments

As an investment analyst at a real estate fund, you are tasked with evaluating a potential new acquisition: a 200-unit multifamily apartment complex located in an urban area with strong demand for rental units. The seller has provided a financial model projecting a net operating income (NOI) of $1.5 million in the first year, with a projected annual growth rate of 3% for the next five years. You also know that comparable properties in the area have recently traded at a capitalization rate (cap rate) of approximately 6%.

Using appropriate valuation methods for real estate, describe the steps you would take to assess the value of the apartment complex and the implications of different cap rates on the property's valuation. Discuss the strengths and weaknesses of each method you consider, including, but not limited to, the income approach and the sales comparison approach. Ensure to support your analysis with calculations where necessary.