Cap Rates Below Inflation - Implications?
In recent memory, cap rates have typically been above therate. What I'm trying to wrap my mind around is how conceptually should I be viewing the relationship between cap rates / inflation, but specifically in an environment where cap rates are BELOW inflation. Meaning that on a 6-cap you'd actually be losing money if you can't grow NOI such that the with the > 6% inflation rate. Wouldn't you be better putting your money in I-Tbonds or equities markets or something that at least offers an upfront return greater than inflation? This question should be viewed in the context of core stabilized yield-driven investing and not something that requires a ton of risk (slight value-add through operational efficiencies at most, i.e. no redevelopment).
I feel like I'm missing something crucial in how I should be thinking about it.
I say this from someone who just exited their first RE investment (slam dunk), but I did it right before rates started rising. I'd really appreciate any guidance from more experienced folks who have seen a couple cycles and different financing environments. Thanks.