Built-up technique

Hi guys, Does anyone have a good answer to why the built-up method (pertaining to real estate capatilization factor) has a component of expected capital appreciation added to it?? I mean, normally you subtract the growth rate from the required rate of return but in this case you add it on top of the other risk factor contributions.

Hi Gus, It is the recapture premium net of expected appreciation is added and not the appreciation (growth).

Thanks Rakesh, but what is the rational for adding that on?

not exactly sure but it I am thinking this rate as a opportunity cost over and above the pure interst rate which is expected from the real estate investments but I may be completely wrong.