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How are you doing deals exiting at 5.25? I havent look at deals in nyc in awhile, but I'm pretty sure I've heard about a couple recent trades at ~4%
We are not doing much atm. Only looking at significantly discounted and distressed value add projects. T bills are 4.5% risk free right now
Could you explain the exit cap and risk free rate? You're basically saying that these are distressed Class A assets you will renovate/bring up occupancy rent whatever and are looking to sell at a 5.25% because you need some spread between that and the risk free rate on treasury's aka a very safe return and due to the risk of you strategy you need some buffer (always some premium above RFR in general).
When you say best zip codes, do you mean up-and-coming? We're doing very strong in Bushwick 11237. No rent-stabilized.
5.25% sounds about right. NYC caps today are not the lowest...
Obviously depends on the asset and the implied business plan. We see some deals in the mid 4 caps, but there is a heavy value-add component which we feel comfortable we can achieve. Certainly not underwriting an exit under a 5 cap. I think 5.25% is probably right on the money - my guess is in 3-5 years you'll see some compression, maybe not down to the 3 range we saw a few years back, but I don't think it's overly bullish to think cap rates settle in the high 4s. So a low 5 seems like you're building in some protection.
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