Equity Yield Rates

[PL1957]

My problem with the Korpacz rates (as provided by the PDF linked to on the AI home page) is that they are usually outdated (right now the rates shown reflect 3rd-quarter 2007), do not cover all property types, and even the four categories included are ridiculously general.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.

The full Korpacz survey has a lot more information that the summary on the AI site. Multiple individual markets, some specialty articles/rates. 4Q07 has been out for a while as well.

 

[CBBoston]

Recently my partner and I were having the recurring discussion about equity rates primarily as inputs for the BOI. I had been talking to investors about cap rates for 20 to 50 unit apartment complexes. I was getting cap rates all over the replace for similar properties. This type of property is attractive to larger individual investors and smaller REITs. The motivations of each group are somewhat different. However, both groups said they look at cash on cash return (equity rate) but on an after tax basis. In addition they said that what they pay might also depend on how the property fits in their portfolios nad any management synergy. The problem as I see it is teasing out all the information (and pricing it) that's needed to work back to the equity return. This makes extraction from market data pretty loose, 5% to 8% spread. Of course, once you throw that into the BOI, it doesn't make that much difference if LTV is high. The problem as I see it is that survey data is always suspect. Participants lie. For that matter so do buyers. Back in the days when I was in commercial brokerage, one major investor told he told appraisers, and anyone else, what he thought would benefit him most, true or false. Don't you just love dirty data. :laugh:

 

[matt hawk]

Did you really use the word synergy?

 

[CBBoston]

I know, how trite. But that's they way they talk. In the business world when companies talked about synergy in takeovers and mergers, it usually meant we have no clue how we're going to make money on this deal. :laugh: The same is probably true for real estate. However there might be some economies of scale.