Dmerjian is appraising two parcels of property. One is leased to the government for use as a post office; the other is leased to a private owner for use as a hardware store. Both parcels have recently started long-term leases. The capitalization rate of the post office property as compared to the capitalization rate of the hardware store property will be:

A. higher
B. lower
C. the same
D. proportionate

Answer: B. lower
Explanation: The post office will use a lower capitalization rate because it is a less risky investment and a real estate investor will not expect as great a return on the investment. A hardware store is more likely than a post office to go out of business, so the store will need a higher capitalization rate.