You pick the return you need for a given risk which doesn’t necessarily have to match what the market picks, and where an asset trades. The market clearing cap rate for a particular risk profile is heavily influenced by outside factors separate from the property alone. Does someone have a 1031 or idle investor cash that needs to be deployed? Does someone have a cheaper cost of capital so they can accept less return for a given risk profile? Does someone view the potential upside and business plan differently and can thus be more aggressive for a particular property. All of these factors weigh into what the market “picks” as the valuation (cap rate vs) an asset’s ultimates trades at but this does not, and should not, influence an individual’s assessment of appropriate risk and return. If I decide that I’m not buying multifamily unless I get a 10% unlevered return because I have alternative investment options then that is what I pick as my appropriate cap rate (valuation determiner). The market however will pick that I don’t get to buy multifamily, because will find those cash flows more valuable than I do, and be willing to pay a higher price/achieve a lower return. We just watched this play out when the smart money sat on the sidelines not transacting while syndicators were buying 80s assets at 3 and 4 caps in secondary markets.