Cap Rate Ranges

[valuetiger]

I have reviewed several appraisals for commercial properties and notice that the appraiser has some verbiage in there such as "the typical range of cap rates for this type of property range between 17% and 22%". Where are these ranges obtained .. web sites, etc? Is there an online source that publishes these ranges or are they obtained from listings?

Thanks,

Bill

 

[Michigan CG]

Where are these ranges obtained .. web sites, etc? Is there an online source that publishes these ranges or are they obtained from listings?

Cap rates, just like sale prices are obtained from sources. The sources vary, and just like the confirmation process for residential, the sale of commercial properties must also be confirmed for accuracy.

Typically the sales price for commercial and residential properties are obtained from public records (in some states) or from the brokers/RE agents involved. The commercial property sales typically need more verification. Income information is not in public records, and some of the income and expense data in the listings are "skewed". You have to verify, interview, research and confirm.

If you do not do this you might as well guess. It will not be accurate.

You must know who pays what, who gets credit for what...ad finitum.

I remember a discussion with appraisers 160 miles away from me a couple years ago. They had apartment buildings selling for 5% cap rates. My market was 8.5%. Pretty huge difference in value.

You can get information from web sites like CoStar, or Loopnet, but they still have to be confirmed. Many times they are wrong.

Cap rates are obtained from extensive research and due diligence. That is one of the reasons commercial reports get higher fees, it takes a lot more time to do them as the information is not as readily available.

 

[Dennis J. Black ASA IFAS]

17-24%

That there is investment grade real estate LOL

 

[Kali the Boston Terrier]

17-24% what is it a buggy whp manufacturer in Atlantis?

Typically cap rate ranges can be obtained from RERC.com, RealtyRates.com, IREM, Korpacz, etc. These are survey subscription services, so don't think you will be poking on their website and get a free bit of data. Typically Realty rates does a better job getting info for regions, where Korpacz and RERC tend to be more nationwide. In our market the courts (Rules of evidence) have upheld that survey rate services are adequate sources for capitalization/Discount rates. In fact our Tax court typically frowns on market extracted cap rates. Although I do not agree with that, it does give some credibility to the survey rate services. Some buyers and users will benckmark with these guides, so it does stand to reason that there might be some relevance.

 

[H.B. Userman]

What type of real estate? Is it a business??

 

[PropertyEconomics]

Depending on where it is, I might be a purchaser at 17% - 22% cap rates.

 

[valuetiger]

Cap Rates

Although I just threw that rate out there, I have seen similar rate ranges reported for video poker/truck stop establishments.

 

[Mountain Man]

Using Korpacz Investor Survey is one thing, but you need to at least attempt to get good income/expense data to extract a cap rate. Giving a guestimate range with no support is... well, :new_all_coholic: :new_2gunsfiring_v1:

 

[H.B. Userman]

In Wisconsin, video poker is still very much a "gray area". The machines are in almost every establishment, but they are technically illegal gambling devices. The machine, if used as a gambling device is illegal, but the use for amusement is legal. I know several people that operate these gaming routes. One with over 100 machine locations. I'm also aware of a recent transaction of a route with 50 or so games. The terms of that sale included only personal property, and if a "cap rate" was developed, it would probably be about 80%. It's a high risk business itself, so I'd assume any real estate linked to this use would also warrant higher rates of return.

 

[valuetiger]

Video Poker

Wisconsin is definitely different than Louisiana. These are income generating machines. The rules are rigidly laid out ... so many acres means that it is a truck stop. If it is a truck stop, they can house x number of machines. If it is not a truck stop, only 3 machines can be located there. Very much a fixture in Louisiana.