What are you guys seeing with Cap Rates? While the price of debt continues to rise, it seems like the cap rates (in stuff I'm looking at) have not followed suit and in some cases appear to still be compressing. Curious on when you guys think they start to catch up and move the same way as the debt. Maybe I am missing something or we are just in the part of the cycle where this happens (still relatively new to RE).
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Bump. Where I'm at, Cap Rates seem stagnant but very compressed. In some situations I have seen deals where you need 60% LTV to even cash flow.. which is just ridiculous.
I'm looking nationwide (larger tier 2 markets) Running into the same thing over and over it feels like. On top of that trying to pencil a return that makes the deal worth doing is becoming increasingly harder.
Deals are harder, the water is stagnant
Yes it is, take a look at real capital analytics/moody’s national cap rate trend, it is still compressing
The spread between cap rate and treasury is still 2x pre-recession level
Can you post a link to Moody's National Cap Rate Trend?
EDIT: CBRE posted their H1 Cap Rate Survey which seemed to show most property types flat, with industrial cap rates continuing to compress.
I thought moody bought RCA so I’m just referring to the same thing, cap rate trend from real capital analytics
Very soon IMO
I just keep getting blown away by how much we end up hearing we get beat on a deal by and trying to figure out what we missed. Often times I'm not able to find it/we don't think we missed anything big. I suppose maybe its just a function of much access to cheaper debt and greater economies of scale on certain things. Not sure but its frustrating.
If you’re seeing compression, it’s due to the private equity dry powder that need to put money to work.
@OP, the price of real estate debt has not been rising. While benchmark rates, such as LIBOR, tied to deal all-in interest rates have gone up, there has been a basis point for basis point reduction in spread to maintain the same all-in deal interest rate. In fact, this all-in rate is compressing, not widening, as Lenders are willing to accept the bottom end of their target return thresholds in order to win deals.
Yeah, 10yr TBill is up about 75bps in a year yet rates are up only about 25bps. Long term fixed rates still mid 4% range. This is when lenders start cherry picking even more.
When do you expect pricing to increase? When defaults increase? When business plans don't pan-out, and they have to refi at a high rate instead of selling?
It seems like there are a lot of buyers buying at very low cap rates and a lot of lenders that are issuing very covenant-lite debt.
I assume in terms of cherry picking you mean becoming more selective in the things they are willing to finance?
It's hard to say.
I do feel cap rates on real estate will see a move upward overall on many asset classes and price ranges once 5yr pricing exceeds 5%. Right now you can burry a questionable deal with short term loans at 4.3% to justify the deal because 10yr money might be 4.75% or higher.
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