Equity Yield Rates

[MNRural]

Anyone have any sources for published or surveyed equity yield rates for a retail property (or any other property type for that matter)?

 

[jhillas]

Korpacz Investor Survey, some of the data is available free to AI members. Some may also be available to non-members.

 

[Kali the Boston Terrier]

You could try www.realtyrates.com or www.rerc.com , those are both sites that are local Tax tribubal have accepted as being pretty accurate.

 

[Howard Klahr]

I am assuming that you were not able to calculate this information from your comp data??

 

[matt hawk]

Quick reply to Howard. I suppose it is one of those endless debates, but I don't think using a calculated equity yield rate from a completed project, be it a sub-division or an office building, is the correct way to do it. In my opinion, you should use the yield rate the investor was expecting to make him pull the trigger on the deal. That's why he bought the property. It may be influenced by other yields he's gotten or heard about, but not the reason he did the deal.

 

[hastalavista]

Quick reply to Howard. I suppose it is one of those endless debates, but I don't think using a calculated equity yield rate from a completed project, be it a sub-division or an office building, is the correct way to do it. In my opinion, you should use the yield rate the investor was expecting to make him pull the trigger on the deal. That's why he bought the property. It may be influenced by other yields he's gotten or heard about, but not the reason he did the deal.

From the recent courses I've taken, I would agree with this statement.
However, "the investors" are the buyers for the comparables reviewed (if not used) for the assignment, no? They would be the one's to interview? (whether they'd share their calculations is another story)

 

[PropertyEconomics]

The real issue is comparison of ACTUAL rates with ANTICIPATED rates. Merely using what is anticipated could lead to a misleading report and totally screw your highest and best use analysis. Some investors have unrealistic yield expectations and if you use them alone you may very well miss the boat.
I do find that investor yields are often very consistent but the actual rates can vary widely. I would present both just so you can show that you understand both expectations and whats actually being realized in your market.
Best of luck to you.

 

[Howard Klahr]

Quick reply to Howard. I suppose it is one of those endless debates, but I don't think using a calculated equity yield rate from a completed project, be it a sub-division or an office building, is the correct way to do it. In my opinion, you should use the yield rate the investor was expecting to make him pull the trigger on the deal. That's why he bought the property. It may be influenced by other yields he's gotten or heard about, but not the reason he did the deal.

While no one was suggesting that any of the survey data be ignored, whether it is from the larger national surveys or a local one performed by the appraiser, the yeild rates exhibited by the comps still have relevence, especilally in assisting one to decide where in the range exhibited by the survey data would be appropriate for the subject. This does not mean to ignore possible factors influencing rates either up or down but rather provides another source of reference.

 

[Roger Murdock]

The real issue is comparison of ACTUAL rates with ANTICIPATED rates. Merely using what is anticipated could lead to a misleading report and totally screw your highest and best use analysis. Some investors have unrealistic yield expectations and if you use them alone you may very well miss the boat.
I do find that investor yields are often very consistent but the actual rates can vary widely. I would present both just so you can show that you understand both expectations and whats actually being realized in your market.
Best of luck to you.

Sure some investors may be unrealistic (say, ridiculously optimistic), but if that becomes the common sentiment and assumption among the market participants, I would say that it is accurate to base a market value on such rates. In fact, I think that it is somewhat misleading to use actual rates if they do not represent what buyers are working with when they purchase properties. Ultimately our job as appraisers is to transparently reflect the market, not to color it by being more accurate or realistic than the market, even if we are "right" and the market is "wrong".

 

[Roger Murdock]

Korpacz Investor Survey, some of the data is available free to AI members. Some may also be available to non-members.

My problem with the Korpacz rates (as provided by the PDF linked to on the AI home page) is that they are usually outdated (right now the rates shown reflect 3rd-quarter 2007), do not cover all property types, and even the four categories included are ridiculously general. It's a nice place to start but to base a cap rate on the information alone is really a shot in the dark.