Capitalization Rates Can Be Tricky to Determine and to Apply

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All real estate appraisers use the Income Capitalization Approach when it comes to valuing commercial income-producing real estate. This approach determines the Net Operating Income (NOI) of an investment property and divides that number by the capitalization rate or “CAP Rate.” (NOI ÷ Rate = Value). That’s called the “IRV” formula where “I” means NOI, “R” means CAP Rate and “V” equals value. Think of the “CAP Rate” as the return an investor expects to achieve based on the risk they are willing to take. The higher the risk, the higher the CAP Rate. For example, Walgreens does not own…

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High Employment Drives Record Industrial Demand

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High employment and improved consumer spending continues to drive new supply and record demand for U.S. industrial space. According to CoStar managing directors and senior economists Christine Cooper and Abby Corbett, industrial space leasing hit an all-time high of 139 million square feet in the second quarter, outpacing the first quarter by 46%. In some markets, industrial and retail are merging, placing increased demand on distribution networks. The line between industrial and retail are blurring as companies like Amazon try to position its same day delivery service in closer proximity to the consumer. This demand has reshaped the eCommerce industry….

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