Beyond Cap Rates via CCIM Institute

Capitalization rates for multifamily properties appear to have stabilized at very low levels after a veritable free-fall in major metropolitan markets since the end of the Great Recession. The drop in cap rates appears to be the result of low cost permanent financing, the perceived long-term stability of apartments as an asset class, and a lack of yield in other industry segments.

Investors purchase apartment projects in major markets as soon as they are listed - or in some cases before they are listed. The historically low interest rates provided by permanent lenders - Fannie Mae, Freddie Mac, conduits (until recently), and some local and regional banks - make acquisitions at high prices per unit and correspondingly low cap rates feasible. However, going-in cap rates tell only part of the story for long-term investors.

Read more...Beyond Cap Rates | CCIM Institute