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Safer Multifamily Investments, Selection Bias Keeps Q2 Cap Rates Down
Despite continued increases in the Fed’s borrowing rate since December 2016, apartment cap rates have barely registered a change. A report by Reis shows the mean apartment cap fell 30 basis points in Q2 2017 to 5.7% from 6% in the three previous quarters. The mean 12-month rolling cap rate was unchanged in Q2.
The main reason cited for a drop, after three quarters of flat cap rates AND after the bumps in the fed funds rate, is investors see the apartment sector as a safer investment when interest rates climb – thus pushing down cap rates.
Additionally, Reis says, selection bias has kept cap rates lower throughout the year. Cap rates reflect the properties that traded in the quarter, and those that traded were likely “better” properties in safer submarkets relative to previous quarters. A lower average cap rate is consistent with the higher effective rent growth experienced in Q2 too.
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