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ACross-Sectional Analysis of CapRates by MSA

Author

Listed:
  • Doina Chichernea

    () (University of Cincinnati)

  • Norm Miller

    () (University of San Diego)

  • Jeff Fisher

    () (Indiana University)

  • Bob White

    () (Real Capital Analytics)

  • Michael Sklarz

    () (Global Analytics New City)

Abstract

Much attention has been paid to capitalization rates or “cap rates?defined as the net operating income over transaction price, also known as a “going-in?current yield on commercial real estate when calculated at the time of purchase. We know that there are a number of global factors that drive capital markets and required rates of return that help to explain observed cap rates over time, but we know little about factors driving the geographical cross-sectional variation of these cap rates. Why are cap rates for similar sized and type property so much lower or higher in one metropolitan statistical area than another? Using data from Real Capital Analytics for multifamily properties we explore several models that combine the expected influences from housing demand growth, supply constraints, liquidity risk and the interaction of these. We document a very strong and robust relation between supply constraints and cap rates as well as evidence of capital flowing from larger markets to smaller markets in recent years. We also find weak but generally supportive evidence of influences from expected growth rates, liquidity and other risk factors.

Suggested Citation

  • Doina Chichernea & Norm Miller & Jeff Fisher & Bob White & Michael Sklarz, 2008. "ACross-Sectional Analysis of CapRates by MSA," Journal of Real Estate Research, American Real Estate Society, vol. 30(3), pages 249-292.
  • Handle: RePEc:jre:issued:v:30:n:3:2008:p:249-292
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    References listed on IDEAS

    as
    1. Jeffrey Fisher & Dean Gatzlaff & David Geltner & Donald Haurin, 2003. "Controlling for the Impact of Variable Liquidity in Commercial Real Estate Price Indices," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 31(2), pages 269-303, June.
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    7. Stephen Malpezzi, 1994. "Housing Prices, Externalities, and Regulation in U.S. Metropolitan Areas," Wisconsin-Madison CULER working papers 94-08, University of Wisconsin Center for Urban Land Economic Research.
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    12. Zahra Saderion & Barton Smith & Charles A. Smith, 1994. "An Integrated Approach to the Evaluation of Commercial Real Estate," Journal of Real Estate Research, American Real Estate Society, vol. 9(2), pages 151-168.
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    Cited by:

    1. Serguei Chervachidze & William Wheaton, 2013. "What Determined the Great Cap Rate Compression of 2000–2007, and the Dramatic Reversal During the 2008–2009 Financial Crisis?," The Journal of Real Estate Finance and Economics, Springer, vol. 46(2), pages 208-231, February.
    2. Fuess, Roland & Koller, Jan A., 2017. "Best Land Use with Negative Externalities: Determining Land Values from Residential Rents," Working Papers on Finance 1705, University of St. Gallen, School of Finance.
    3. repec:eee:foreco:v:28:y:2017:i:c:p:70-79 is not listed on IDEAS
    4. Steffen Heinig & Anupam Nanda & Sotiris Tsolacos, 2016. "Which Sentiment Indicators Matter? An Analysis of the European Commercial Real Estate Market," ICMA Centre Discussion Papers in Finance icma-dp2016-04, Henley Business School, Reading University.
    5. repec:kap:jrefec:v:55:y:2017:i:4:d:10.1007_s11146-016-9561-4 is not listed on IDEAS

    More about this item

    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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