Clients and students are always fascinated by capitalization rates, or “cap rates”: Why are they different from place to place, property type to property type, and overall building quality reflected by its construction and management. Moreover, what do those cap rates really mean? How should they be interpreted and utilized for investment decision-making or other purposes such as a refinance or tax assessments? In this article, we define and analyze cap rates. We then discuss what is driving cap rates to further explain the observed cap rate differences amongst properties.
An investment property, either owner-managed or managed by a professional management company can be either routinely managed to realize average returns or pro-actively managed to obtain superior returns.
Real estate investments generally fall into three categories – core, value-add, and opportunistic. Each category is attractive to and serves the risk-return appetite of certain type of investors.
Coffee & Cap Rates – A Bi-Annual Discussion About the NYC Investment Sales Market Presented by Ariel Property Advisors
Property valuations or appraisals are commonly used when we consider buying or selling a property, lending on a property, buy out a partner, buy or sell partial interests (such as the remaining years on a lease), reposition or repurpose the property, in estate settlements and in a myriad of other uses and purposes.
In general, the result sought in a formal appraisal assignment is the answer to an essential question: “what is it worth?” But the question of valuation and the worth of the property is generally part of a larger issue that the client is trying to solve. As noted real estate teacher and appraiser William M. Kinnard, Jr. said, “Real estate appraisals are made because someone has a problem.”