Commercial Investment Valuations are typically presented as cap rate driven: the lower the cap rate, the higher the price. Investors have the challenge of balancing asset security and safety vs. an acceptable Cap Rate return.
Security and safety include a matrix of attributes: Extended Lease Term, Quality Tenant with good credit history (and track record of business acumen), LOCATION (both the immediate demographics and street/area positioning), a favorable NNN lease, long term appreciation aspects, and financing desirability. However; how low can you go? Cap rates in desirable urban settings wafting in under 4% need a compelling story to convince me.
REMEMBER the OLD Adage: “It’s not what you make; it’s how much you keep.”
Evaluating your cash on cash return is as important, if not more important than a cap rate. If your investment is predicated on a 4% cap rate but the cost of the funds is above that, you are going backwards. It can make sense if you are going into a Value-Added Property, or compelling project that offers an opportunity to increase the income to the current market conditions. No one size fits all but sometimes “all that glitters isn’t gold.”
http://keegancoppin.com/wp-content/uploads/2017/10/KC_Cap_Rates-e1534348667646.png203200Annette Cooperhttp://keegancoppin.com/wp-content/uploads/2017/07/K-C-Diamond.pngAnnette Cooper2017-10-24 17:28:512018-08-15 16:04:52It's not just Cap Rates