What Are the Cap Rate Trends in Your Target Apartment Investment Market?

Each year, Integra Realty Resources (IRR) releases their ViewPoint report, which analyzes commercial real estate trends and forecasts performance for the coming year. One of the factors they track are the market cycles for the top MSAs (which you can find here). Another important factor they track are cap rates.

The cap rate is the rate of return based on the income that an asset is expected to generate More specifically, it is the ratio of the net operating income and the current market value of the asset (cap rate = net operating income / current market value). Generally, at the same net operating income, the higher the cap rate, the lower the property value.

In multifamily investing, the cap rate is used by appraisers in order to determine the value of an apartment building being purchased or sold. Therefore, as investors, the cap rate can be used on the front end to help us determine a fair purchase price – although it is not as important as cash-on-cash (CoC) return and, if you’re an apartment syndicator, the internal rate of return (IRR). However, the cap rate is very important on the back end, because it is used to determine how much the investor or syndicator can sell their asset for, which determines how much profit they can make at sale.

IRR tracks the cap rate for urban and suburban Class A and Class B multifamily products both nationally and regionally, as well as the year-over-year change (measured as BPS, or basis points, where 1 BPS is equal to 0.01%).

Here is the most recent cap rate data for multifamily real estate from IRR’s 2019 ViewPoint report:

 

National

  Cap Rate YoY Change (BPS)
Urban Class A 5.30% +2
Urban Class B 6.11% -3
Suburban Class A 5.47% +2
Suburban Class B 6.32% 0

 

 

South Region

  Cap Rate YoY Change (BPS)
Urban Class A 5.39% -1
Urban Class B 6.23% -4
Suburban Class A 5.54% -8
Suburban Class B 6.48% -2

 

East Region

  Cap Rate YoY Change (BPS)
Urban Class A 5.33% +14
Urban Class B 6.28% 0
Suburban Class A 5.70% +27
Suburban Class B 6.60% +5

 

Central Region

  Cap Rate YoY Change (BPS)
Urban Class A 5.97% -2
Urban Class B 6.83% -2
Suburban Class A 6.01% -2
Suburban Class B 6.85% -2

 

West Region

  Cap Rate YoY Change (BPS)
Urban Class A 4.52% 0
Urban Class B 5.12% -4
Suburban Class A 4.71% 0
Suburban Class B 5.34% 0

 

Are you an accredited investor who is interested in learning more about passively investing in apartment communities? Click here for the only comprehensive resource for passive apartment investors.

 

 

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