Cap Rate Outlook: Inflation vs. Investor Demand via Multifamily Executive Magazine

Cap rates often rise when interest rates rise, but that may not be the case in many markets in 2014.

In the short-term, continued strong demand from equity investors should keep in check any potential hikes to cap rates that buyers hope will accompany higher debt costs.

Most finance experts are skeptical that moderately rising long-term mortgage rates over the coming year would have much if any impact on the apartment sector’s equity yields and capitalization rates—particularly among Class A product where interest is so strong. However some expect that higher debt rates would put upward pressure on capitalization rates of smaller and lesser-positioned properties that attract more high-leverage buyers.

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