When brokers quote cap rates, what are they referring to? T12, In-Place, Pro Forma?
Feel like no one ever says what type of cap rate they're quoting. For examples RCA will have a quoted cap rate, but won't say what it's on. Is it an implied T12 cap rate? Thanks for the help.
If a broker is quoting a cap rate, it is likely the most favorable analysis of the property. The specific scenario could vary depending on what story they are trying to sell regarding the asset in question. A quoted cap rate should be viewed as a data point, that you then should sensitize with your own assumptions either from market data or your own experience with similar assets.
All quoted cap rates are fake until proven otherwise
This. Take them at their word for now. Once you start looking at leases and expenses you can come up with your own determination.
Broker? They’re making it up.
No one ever knows, so everyone’s supposed to ask
The "standard" is a very favorable/massaged T12.
I've yet to see a broker quote an in place cap rate. Nearly all the time, they trend the rents, plus lower OpEx to a very low figure by making some ridiculous assumptions on a proforma NOI in YR 1. I would take what any broker says in terms of cap rate with a grain of salt.
work in cre brokerage, for me a cap rate is Year 1
so:
latest rent roll for revenues
latest annual expenses (i.e now its gonna be 2025 actuals, was 2025 budget).
depending on asset i might add +3% to the above to get a year 1 for example.
to me, that is a kosher cap rate
Pro forma stabilized excluding capex reserve, TI/LCs, base building improvements, property tax reassessment, assuming 0% stabilized vacancy, growing market rents at 20/15/10%
Pre-2022: Yr1 was typically more quoted.
Now: In Place because no one knows what the fuck the following year or tomorrow will bring.
This post made me pull out a Meridian Capital set up I saved from 2014 for a rent regulated walk up in East Williamsburg. Pro forma rent roll was 475% above actual and expenses were 72% below actual.
Incredible
I usually just ignore it but probably pro forma Lol. The real mystery is their cash on cash rate.
The lowest cap rate
It is tedious to define what kind of cap rate you are looking at, but really that is what you have to do in order to make a cap rate mean anything.
It still bugs me like 5 years ago when someone was telling me about a light industrial portfolio trading at like a 3.75% on in-place income while 70% occupied, and acting like that was a relevant number to a stabilized deal. If that buyer expected to never fill that vacant space, sure, but realistically not so much.
No one will standardize because they all quote the most impressive cap they can. You have to remember for better or for worse they’re constantly book talking.
they dont know
In-Place NOI
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