Cap Rate Data
Outside of talking to brokers, looking at costar under the Sale tab, or RCA, is there another way to find cap rate data?
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Please tell me that you are verifying the expenses make sense from any/all the sources you listed above?
What?
His point is that cap rates don't actually tell you anything. Looking at a deal which is selling for a 6 cap is not only useless but actively detrimental to assessing whether it's worth doing, unless you know the underlying numbers that are generating that cap rate.
Brokers are notorious for lying about expenses, because they aren't fiduciaries and have no risk or liability and their incentives are pretty perverse. I've never used CoStar but I imagine a lot of the same issues would crop up, where there is no way to verify what you're being told about I/E except by digging into the actual underlying documents and financials to verify whether what's being told on the top line is realistic.
Why do you want to compare cap rates in the first place? School project?
REIS (now part of Moody’s Analytics) also has sales comps with cap rates, but the cap rate that you are getting out of any of these sources is going to be of limited value if you don’t know what assumptions went in to the cap rate.
Is it T12 or pro forma rents? Expenses? With a property tax reassessment? Charging a management fee that the previous owner didn’t charge? Or excluding the owner’s extended family’s health insurance that was expensed against the property’s income?
Is there significant leasing required? Buying a half empty building when you have a tenant in your back pocket will give you a super low cap rate on T12, but the pro forma should be a normal number.
Thanks!
Are you looking for a market cap rate, or specific transactions?
For market data, there is the data export tool in costar.
Also NCREIF, Green Street, Crexi, moodys, msci ipd, various big brokers will sell you data too.
Was thinking for transactions but that’s good info, thank you!
One man's opinion: there's no 'best source' of cap rate data because the 'data' or comps in general are presented like they're all apples-to-apples when in fact the buyer, seller and broker on the same deal often have three different opinions as to what it was.
Possible different means of calculation:
Ultimately, the number is whatever you can defend. And don't get me started on rent comps (abatements, TI, options, length of term, etc etc). Costar's great because it's generally accepted. Personally, I also like comps from property appraisals because it's an 'impartial' 'professional' who goes by the book. But once you're talking about broker-sourced, dropped into an OM by a 22 year old, it's a little more arguable. And beyond that, who's to say what's a comp and what's not. No two assets are identical.
Rant over. And to the young real estate guys who've spent more time in a classroom than actually working, and whose professors pretend there's perfect symmetry of information in real estate: sling the poo! I love it! Yum yum!
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