2023 Cap Rate Survey

The H2 2023 Cap Rate Survey (CRS) by CBRE indicates tighter lending standards and distress expected, but yields could be nearing their peak.

Digging into the data: Collected from over 250 industry professionals, this dataset of 3,600 cap rate estimates across more than 50 U.S. markets offers a critical look at investor sentiment during a period marked by investment caution and pricing dislocation. H2 2023 saw cap rates rise from 6.4% to 7%, propelled by bond market fluctuations with yields peaking at 5% then retracting to below 4%, indicating widespread cap rate growth across property sectors.

Zoom in: Stabilized cap rate estimates for properties in 2H23 show expansion, especially in commodity office assets. Class C urban properties saw a notable increase of over 100 bps, while suburban yields generally rose by less than 50 bps. Multifamily and neighborhood retail pricing remained relatively stable.

➥ THE TAKEAWAY

Expectations and projections: Survey respondents across property types largely expect no significant change in cap rates over the next six months. In the office sector, a higher share predicts further devaluations due to uncertainty. Expectations for cap rate increases in 1H24 decreased, possibly reflecting a more accommodative Fed policy and declining bond yields.

https://www.creconsult.net/market-trends/h2-2023-cap-rate-survey-real-estate-investment-trends/

CRE Investment Insights for 2024 Amidst Economic Shifts

In the face of economic uncertainties, timing the market for the acquisition (or disposition) of commercial real estate can be challenging. And while it’s been posited that market timers usually fail, acquisition price is crucial to investment success. An abundance of pessimistic voices insinuates adverse market outcomes, painting a grim picture of doom and gloom as we head into 2024. Social media and echo chambers can make these voices seem outsized, but many qualitative views and quantitative metrics indicate that those voices don’t tell the entire story.

Plenty of indicators suggest that if you have access to capital, commercial real estate may currently present a good buy opportunity. These, as well as real estate’s inherent and historic stability amidst fluctuating signals, suggest that those who stay levelheaded and key into signals within the noise may tap into significant potential returns.

There’s real distress, but trends are cyclical

Cycles occur and exist as an inevitable component of any investment sector. After 9/11, for example, some thought people would never work in high-rise office buildings again. Yet, until COVID-19 changed many of our norms, offices were a strong product type. The dot-com bubble, the savings and loan crisis, the global financial crisis—the commercial real estate sector swelled and compressed through each of these yet stood at nearly $4 trillion of total market value in 2022.

The psychology of markets propels these shifts: People swing from bullish to bearish and sometimes believe the pendulum will freeze until it inevitably moves again. The herd often thinks the good times and the bad times will never end while we are in them. Those who ignore the noise and zig while others are zagging can make fortunes.

Much of today’s distress is driven by interest rate increases, but these rates are still historically low—just ask an investor from the 1980s, when rates were in the high teens. One can argue that several years of near-zero rates have bred complacency and that these rate hikes are calling on CRE stakeholders to level up to survive. It’s not easy money anymore, but that doesn’t diminish the sector’s potential.

This leveling up ultimately will make the overall sector much stronger, built on more well-crafted debt structures, invested in better value deals, and with a sharper-honed sense of the market’s cyclical reality.

There are asset class-specific and macroeconomic concerns that are worth mentioning. Global news has many on high alert as we watch developments in geopolitical conflicts and their economic impacts ripple through the U.S. economy. Inflation’s growth is slowing as of last month, yet our GDP continues to rise.

Offices are potentially nearing a trough, but there will likely be plentiful opportunities to acquire great assets at a discount for those who can source capital. If demand for space returns as companies call the herd back to the office (in some form), a lack of new office development may result in a shortage and a return to health or even prosperity. Retail and industrial sectors are relatively insulated despite potential shifts in consumer spending habits. Multifamily housing becomes ever more crucial as families get priced out of single-family homes.

Real estate’s inherent diversification proves immensely attractive in a world of fast-shifting share prices, exchanges escalating up and down, and meme stocks. Investing in commercial properties broadens your portfolio beyond the traditional forms of investments, like stocks and bonds, into the world of industrial, retail, and housing.

CRE is built on relationships

As any good broker or investor knows, the commercial real estate industry is built on relationships. During less free-flowing market phases, especially as we come off a long bull run, these relationships become ever more crucial.

Within this sector, CRE participants are making moves amid distress to creatively problem-solve refinancing issues, deal flow, and even landlord-tenant relationships. Banks and lenders, with an understanding that buildings are best retained and managed by more entrepreneurial borrowers, are motivated to meet owners at the bargaining table and come up with creative term adjustments and modifications. Especially as banks continue tightening their lending requirements overall, it’s essential to build up these good relationships now and reaffirm a commitment to mutual success.

While buyers are taking longer to source, evaluate, and close deals, they’re much better prepared to take advantage of good opportunities when they appear if they’ve cultivated fruitful relationships with brokers, financiers, and other key transaction personnel. Many, indeed, are assembling such networks and keeping a close eye on market trends to strike when the iron’s most hot.

Landlords, too, are engaging in ongoing conversations with prospective and current tenants, especially those with upcoming lease renewals. By keeping these dialogue channels open, tenants get more attractive lease terms, while landlords can rest assured of their rent payments. Happy tenants are much likelier to stick around for the long haul—a reassuring guarantee of stable cash flow amid more volatile markets.

Strong careers are forged in tough times

What’s different this time around? New tech tools and broader access to democratized information are unlocking efficiency and potential more than ever, making now an exciting, if challenging, time to enter and stay in commercial real estate.

Advanced digital marketing tools not only widen the reach of a listing to prospective buyers or tenants but also provide detailed insights into who that audience pool is or even could be. More and more brokers are adopting digital listing platforms, social media, and advanced CMS software to establish and nurture client relationships. Outside of a particular deal, these relationship tracking tools facilitate relationship building, which, as mentioned above, is crucial to the industry’s success.

The integration of big data and analytics is also transforming the way commercial real estate operators make decisions. The aggregation of data such as market trends, demographic shifts, sales comparables, and foot traffic makes holistic due diligence faster, more transparent, and fully remote if need be. There’s a hunger for information and better tools, and advances in AI and other technological sectors allow CRE stakeholders to prioritize relationship-building while automating other facets of their business.

Additionally, predictive analytics tools can help identify emerging trends, forecast demand, and assess the potential profitability of a given asset. This level of analysis was previously time-consuming and costly, but with advancements in research tools, investors can now access comprehensive data and analytics tools, giving them a competitive edge in the market.

New technologies are also making engagement with mentors and industry leaders more accessible than ever, through articles, education, and even DMs. Advances in digital marketing tools have dramatically reduced business costs, and it’s never been easier to build a unique brand and highlight what differentiates you as an investor, landlord, or broker. Using technology well can offer savvy CRE stakeholders a distinct advantage.

Outside of technological advancements, an environment of adversity breeds resilience. Many Crexi Podcast guests acknowledge current challenges but claim there’s never been a better time to enter the sector, as troubles sharpen skills, strengthen networks, and demonstrate one’s capabilities. Younger professionals are also excited about the chance to prove themselves in a shifting market, and those who become exposed early on to the potential financial hurdles of a CRE-focused career will be better equipped to thrive when the tides shift.

The bottom line

Real estate remains one of the best asset classes and ways to maintain control of your money’s destiny. Those with entrepreneurial grit who can best prepare themselves, increase their knowledge, optimize their toolkit, and develop relationships will be best positioned when the wheel of fortune turns back around.

Request a consultation to explore how our network can unlock CRE opportunities for you.

Source: The sky isn’t falling. Here’s why we remain bullish on CRE

https://www.creconsult.net/market-trends/cre-investment-strategies-2024/

Future of Multifamily Properties: Refinance or Sell?

Are multifamily owners gearing up for a wave of refinances? Or will they sell their properties in droves? Either could happen, as more than 55,000 U.S. apartment properties have loans that are set to expire by the end of 2028, according to the latest research from Yardi Matrix.

According to a new report from Yardi Matrix, 58,533 U.S. multifamily properties are financed with loans set to mature during the next five years.

How big of a financial impact could this have? Yardi Matrix says these loans represent $525 billion of the total $1.1 trillion of loans currently backed by apartments.

Atlanta, with $34.9 billion in loans set to mature by the end of 2028, has the largest volume of upcoming maturities. Next comes Dallas, with $26.6 billion of multifamily loans scheduled to mature by the end of 2028; Denver, with $22.9 billion; Houston, with $20.8 billion; New York, with $19.9 billion; and Chicago, with $18.8 billion.

Markets with the highest percentage of loans coming due through the end of 2029 are Atlanta, with 65.9%; Denver, with 56.9%; Nashville, 56.2%; Las Vegas, 55.9%; Houston, 53.6%; and Chicago, 53.2%.

More than half of the multifamily loans found in Yardi Matrix’s database—$641.8 billion, equal to 56.3%—were originated by Fannie Mae and Freddie Mac. Next in line, at $187.3 billion, or 16.4%, came from commercial banks, followed by the federal government/HUD ($115.7 billion, 10.1%), debt funds (69.9 billion, 6.2%), life companies ($67.6 billion, 5.9%), and CMBS ($25.2 billion, 2.2%).

These numbers aren’t completely surprising. As Yardi Matrix reports, multifamily originations peaked in 2021, when $194.7 billion of loans were originated, and in 2022, when lenders closed $209.8 billion of multifamily loans. Low interest rates and high demand for rental living spurred this surge of new multifamily loans.

The interest-rate environment is different today, though, which could make it difficult for multifamily property owners to refinance. Others might struggle to sell their properties without taking a loss, depending on how the U.S. economy performs during the next five years.

The wave of maturing loans might result in an increase in multifamily sales during the next five years.

Of the loans in Yardi Matrix’s database, $61.8 billion are set to mature in 2024, with another $84.3 billion in 2025, $89.3 billion in 2026, $77.9 billion in 2027, and $107.3 billion in 2028. By percentage, 5.4% of the loans will mature by the end of this year, 12.8% by the end of 2025, 27.5% by the end of 2027, and 46.1% by the end of 2029.

Contact us for personalized advice on refinancing or selling your multifamily property ahead of loan expiration.

Source: It’s coming: Loans on more than 58,000 multifamily properties set to mature in next five years

https://www.creconsult.net/market-trends/future-multifamily-properties-refinance-sell/

Maximize Returns in Multifamily Real Estate with Cap Rate Insights

Want to make smart moves in multifamily real estate investing? You must get familiar with cap rates.

These handy figures give you crucial intel on potential investments—think profitability, risk levels, all that good stuff. When it comes to larger apartment properties, understanding cap rates is a must if you want to make informed decisions.

But cap rates aren’t always straightforward. To really harness them for your investing strategy, you need to know the ins and outs.

In this comprehensive guide, we’ll dig into multifamily cap rates from all angles. You’ll discover how to calculate them, how to interpret them, and, most importantly, how to use them to maximize returns and minimize risk.

Let’s get into it.

What is a multifamily cap rate?

At its core, a cap rate is a handy financial metric for real estate investors. It lets you quickly size up the potential return you could get from buying an apartment property.

Technically speaking, it’s calculated by dividing the property’s net operating income (NOI) by its current market value. This gives you the rate of return as a percentage. Simple enough so far!

Now, cap rates are useful for two big reasons:

• They show the potential property return regardless of how it’s financed—no factoring in mortgages or taxes. Think of it as approximating what you could earn in Year 1 of ownership.
• They give you insight into the investment risk level. Generally, a higher cap rate means more risk but potentially bigger returns. A lower cap rate suggests lower risk but smaller earnings. See the trade-off?

In essence, multifamily cap rates present a handy risk/return balance. You get to size up potential profits and the associated risks—super helpful intel for real estate investment decisions!

How to Calculate a Multifamily Cap Rate

Crunching the numbers on a multifamily cap rate is pretty straightforward. Here’s the formula:

Cap Rate = Net Operating Income / Current Market Value

Let’s break down the components:

• Net Operating Income (NOI): This is the property’s total revenue minus all operating expenses over a 12-month period. Operating expenses include maintenance, repairs, property management fees, utilities, taxes, and insurance—all the costs needed to run the property.
• Current Market Value: The property’s fair market value at the present time. Comparable sales, or the price of similar properties that have recently sold in the area, are typically what determine this.
• Cap Rate: The NOI divided by the current market value, represented as a percentage.

For example:

A multifamily property has an NOI of $1,000,000 and a market value of $12,000,000.

The cap rate would be:

$1,000,000 / $12,000,000 = 0.0833

Expressed as a percentage, the cap rate is 8.33%

Pretty simple math, but those tiny percentages can make or break an investment decision!

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How Cap Rates are Used in Multifamily Real Estate Investment

So we now know what cap rates are, but how do real estate investors actually use them when evaluating multifamily properties? Let’s explore some key applications:

• Asset Valuation: Cap rates give a quick snapshot of how a property may perform relative to the purchase price. This allows for comparing potential investments to see which could generate better returns.
• Investment Recovery: The cap rate also indicates how quickly you could potentially recoup the initial investment. A higher cap rate usually means a faster payback period, which is helpful for comparing deal terms.

But it’s not all sunshine and roses! Here are some limitations to keep in mind:

Cap rates don’t account for financing costs or future changes in income/value, and they also ignore capital improvements and vacancy rates. While super useful for initial assessment, cap rates shouldn’t make or break an investment decision.

The key is using cap rates as one tool among many when analyzing potential multifamily purchases. Check the cap rate, but also dig deeper into the property’s finances, condition, market, and your own investing goals.

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Multifamily Cap Rates vs Gross Rent Multiplier

When eyeing multifamily investments, you’ll likely encounter two key metrics: cap rates and gross rent multipliers (GRM). At first glance, they seem similar, but there are some important differences between the two.

The GRM simply divides the purchase price by the property’s total potential rental income; it doesn’t account for operating expenses.

Cap rates, on the other hand, factor in both income and expenses to give a more complete profitability picture.

The main advantage of cap rates is their ability to evaluate and compare investment returns, risks, and value. For this reason, they tend to be a more reliable tool for real estate investors.

GRMs still have their uses, like estimating value if rents increase, but for determining true investment potential, cap rates generally provide more insightful information.

When running the numbers on a property, calculate both metrics. Just keep in mind that leaning more heavily on the cap rate will help you make informed investment decisions that maximize your returns and minimize risk.

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What is considered a good multifamily cap rate?

The short answer is that it depends! There’s no universal standard since it relies on two main variables: your investing objectives and current market conditions. 

Some key factors influencing a good cap rate include:

• Property location
• Building condition
• Asset type (class A, B, C)
• Overall real estate market dynamics

Taking these into account helps set realistic cap rate expectations, but historically, rates between 4 and 10% are often seen as solid. 

Of course, a “good” cap rate for you might fall outside that range based on your investing goals and the specific property/market, so don’t get hung up on chasing a specific cap rate number. 

Focus instead on how the rate fits into your overall investing strategy and the market landscape, and let your particular objectives and the property details guide your definition of a “good” cap rate.

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Conclusion

So now you’re armed and ready! You’ve got a complete understanding of cap rate calculations, applications, limitations, and how to interpret them. 

Bring this knowledge into your next multifamily property evaluation to let cap rates guide you toward lucrative investments with lower risks.

Ready to explore multifamily properties with great potential? Contact us for personalized investment advice and opportunities.

Source: Understanding Multifamily Cap Rates: Calculations, Interpretation, and Maximizing Returns

https://www.creconsult.net/market-trends/multifamily-real-estate-cap-rates/

Multifamily Property Sales in Naperville and Aurora | eXp Commercial

Maximizing Your Success in Multifamily Property Sales in Naperville and Aurora

Introduction

Achieve unparalleled success in multifamily property sales in Naperville and Aurora with the strategic expertise of Randolph Taylor and the eXp Commercial team. Our dedicated approach ensures your property stands out in the competitive market. Discover innovative sales strategies on eXp Commercial's website and see how we can elevate your property's profile.

Why eXp Commercial is Your Ideal Partner

Tailored Expertise for the Naperville and Aurora Markets Randolph Taylor brings unparalleled insights into the multifamily property landscape of Naperville and Aurora. Leveraging his extensive experience, we position your property for maximum exposure and optimal sales outcomes. Dive deeper into our market analysis techniques here.

Comprehensive Marketing Strategies At eXp Commercial, we don't just list your property; we launch it. Our comprehensive marketing strategies ensure your listing reaches a wide, qualified audience. From digital marketing to traditional advertising, we cover all bases. Learn about our unique approach here.

The eXp Commercial Advantage

Our commitment to your success is unmatched. Partnering with us means gaining access to cutting-edge tools, detailed market insights, and a team that's dedicated to achieving the best possible outcome for your multifamily property sale in Naperville and Aurora.

Conclusion

Don't leave your multifamily property sale in Naperville and Aurora to chance. Let Randolph Taylor and the eXp Commercial team guide you to success. Our expertise, tailored strategies, and unwavering dedication are the keys to unlocking your property's potential.

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Randolph Taylor
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(630) 474-6441 | rtaylor@creconsult.net
https://www.creconsult.net/blog/

1250 Douglas

Shopping Center Outlot/Car Wash For Sale | Oswego, IL
Mason Square Shopping Center, Rte. 34
Lot Size: 1.19 Acres
Zoning: B3
Price: $550,000
Listing Broker: Randolph Taylor
630.474.6441 | rtaylor@creconsult.net

https://www.creconsult.net/fully-equipped-car-wash-oswego-il-route-34/