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Apartment Investment Property Cap Rate Targets

In commercial real estate, apartment building investors continue to be the most optimistic sector especially as net job growth seems to be on the rebound.  Although it’s anticipated that investment property values will hold up in the multi family sector the same can not be said for retail, office, mixed use and epecially hospitality as further declines in valuation are anticipated.

Apartment investor demand is rebounding and although capital is reentering the market, much capital remains on the sideline as investors are treading carefully.  This is due to a number of factors  including the combination of stiff competition,  a limited supply of properties and the number of well priced properties.

We are still seeing a disconnect in multi family valuations fromwhat is on the market and what investors are willing to pay as they adopt more conservative acquisition strategy that better fit the current environment.  Based on in place net operating incomes ( NOI) we are seeing a demand for cap rates between 8%-11% currently in appartment building.  The lower end expectation is near 8%  for top tier grade A properties, while mid tier demand is at 9%+ cap rates and the higher 11% cap for low-tier properties.  The increase in cap rate is directly correlated to the added exposure or risk that investors would face going from a top tier to a low tier property.

We are still seeing a lingering price expectation gap however ; for instance A-quality apartment investment properties are still often selling in the 6.5%-7% rate while the expectation is for a higher cap.

If you are an investor pursuing new acquisitions of apartment buildings contact rob@ideallocation.com with your acquisition criteria, please include market needs, units mix and cap rate range.  Sellers with off market deals may call 312.433.9300 x 20 for exploring exposure to our buyer networks or review acquisition criteria here.

( Note: For entry level apartment building  investors who need to brush up on Cap Rates a good tool for calcualting Cash on Cash Return and Cap Rates is our investment property calculator) .

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