Dive Brief:
- In September, implied cap rates sat at just under 4% of 2021 net operating income, according to an analysis by data and analytics firm Trepp.
- Since February, Trepp has been monitoring cap rates to see if they are keeping up with increasing Treasury yields. Although cap rates have risen, the firm says their increase is a fraction of the increase in Treasuries.
- Cap rates still haven’t passed 4% on a weighted average basis, according to Trepp. They had fallen to nearly 3% in September and October 2021 before rising over the winter.
Dive Insight:
To develop its analysis, Trepp studied sales for apartments that are backed by government-sponsored enterprise loans. It then reviewed the most recent full-year net operating income to tabulate an implied cap rate.
Though the calculations behind their methodology may be different, other firms have also come out with recent cap rate calculations.
A recent report from CBRE said that going-in cap rates rose 33 basis points to 4.09% in the third quarter. In the second quarter, they jumped 39 bps (their biggest increase in a quarter ever) — marking a 72 bps increase over six months. Still, they are below their fourth-quarter 2019 level of 4.16%.
Exit cap rates – used to estimate a property’s value at the end of the holding period – increased 21 bps in the third quarter versus 30 in the second quarter. However, the current 4.63% exit cap rate sat below pre-pandemic levels.
In a separate report, MSCI said cap rates sat at 4.4% in the third quarter after coming in at 4.6% in 2021’s third quarter, according to The RCA Hedonic Series.
“Clearly, cap rates for multifamily have risen in 2022 for all asset classes,” Greg Curci, executive vice president of operations at King of Prussia, Pennsylvania-based Morgan Properties, told Multifamily Dive in September. “What’s less clear is how much they’ve risen.”
Matt Ferrari, co-chief investment officer and head of acquisitions and East Coast asset management for Los Angeles-based TruAmerica Multifamily, told Multifamily Dive in September that cap rates have moved 100 basis points or even higher in some places.
“We were bidding on a deal in Phoenix and they had 20-something offers with cap rates in the fours instead of threes,” Ferrari said.
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