Fifth & Broadway / Metropolis Cap Rate?

Anyone know the cap rate on either one of these transactions? Fifth and Broadway was a large mixed use development in Nashville purchased by Northwood and Metropolis was an apartment tower in downtown LA that sold for $504M. When you all are looking at recent transactions to inform your own acquisitions, how do you use such transactions (fifth and broadway and metropolis, if you were purchasing in Nashville or LA, respectively) to inform basis when the cap rates are not public. What's the best way to use transactions for a pricing benchmark when cap rates are not readily available? It brings up the larger question then if cap rates are even the best measure to judge off of given that they can vary based on tax adjusted, not adjusted, etc.?

Comments (6)

  • Analyst 1 in RE - Comm
2mo 

Are you looking to do something of a similar scale to either one of those transactions? If so I would think your company would have relationships with the respective brokers. If that's the case then you would just ask.

Either way, doubt either of those cap rates are "market" today.

  • Analyst 1 in RE - Comm
2mo 

Why do you say they aren't market today? Just because they went under contract on those assets probably like 60ish days ago? Asking because these are two of the larger sales I've seen recently.

  • Analyst 1 in RE - Comm
2mo 

Correct. The way groups are underwriting has changed a lot in ~60 days due to debt and less conviction around future rent growth / exit caps.

Most Helpful
1mo 
Comma Chameleon, what's your opinion? Comment below:

Cap rates aren't a very good measure and are usually an output rather than input to the equation. Most buyers solve to an IRR, unless you're solving for cash on cash, so you're mostly just picking your growth rates and exit cap with the going-in cap rate just being a by product of the purchase price you solve to and the in place NOI. An IRR on a 10 year cash flow will capture a tax reassessment, mark to market on rents, etc. Granted, the exit cap rate would be related to what the going in stabilized yield is.

The closest thing to what you're talking about would be a stabilized yield which would be the tax adjusted mark to market NOI divided by purchase price. It's a theoretical number, much like untrended yield in development, but it gives a good idea of the terminal cash flow you are buying.

Most brokers will have an opinion on cap rate but in my experience everyone quotes it differently and the devil is in the details, are they using TTM or NTM, are they removing loss to lease, are they reassessing taxes, etc. 

1mo 
Ricky Sargulesh, what's your opinion? Comment below:

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