ACross-Sectional Analysis of CapRates by MSA
Much attention has been paid to capitalization rates or â€œcap rates?defined as the net operating income over transaction price, also known as a â€œgoing-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.
Volume (Year): 30 (2008)
Issue (Month): 3 ()
|Contact details of provider:|| Postal: |
Web page: http://www.aresnet.org/
|Order Information:|| Postal: Diane Quarles American Real Estate Society Manager of Member Services Clemson University Box 341323 Clemson, SC 29634-1323|
Web: http://pages.jh.edu/jrer/about/get.htm Email:
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Kenneth M. Lusht & Jeffrey D. Fisher, 1984. "Anticipated Growth and the Specification of Debt in Real Estate Value Models," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 12(1), pages 1-11.
- 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.
- Richard D. Evans, 1990. "A Transfer Function Analysis of Real Estate Capitalization Rates," Journal of Real Estate Research, American Real Estate Society, vol. 5(3), pages 371-380.
- Joseph Gyourko & Christopher Mayer & Todd Sinai, 2006.
NBER Working Papers
12355, National Bureau of Economic Research, Inc.
- 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.
- Stephen Malpezzi & Gregory H. Chun & Richard K. Green, 1998. "New Place-to-Place Housing Price Indexes for U.S. Metropolitan Areas, and Their Determinants," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 26(2), pages 235-274.
- Mayer, Christopher J. & Somerville, C. Tsuriel, 2000. "Residential Construction: Using the Urban Growth Model to Estimate Housing Supply," Journal of Urban Economics, Elsevier, vol. 48(1), pages 85-109, July.
- Stijn Van Nieuwerburgh & Pierre-Olivier Weill, 2006.
"Why Has House Price Dispersion Gone Up?,"
NBER Working Papers
12538, National Bureau of Economic Research, Inc.
- Yoon Dokko & Robert H. Edelstein & Marshall Pomer & E. Scott Urdang, 1991. "Determinants of the Rate of Return for Nonresidential Real Estate: Inflation Expectations and Market Adjustment Lags," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 19(1), pages 52-69.
- Lawrence Benveniste & Dennis R. Capozza & Paul J. Seguin, 2001. "The Value of Liquidity," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 29(4), pages 633-660.
- 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, 06.
- Alberto Plazzi & Walter Torous & Rossen Valkanov, 2010. "Expected Returns and Expected Growth in Rents of Commercial Real Estate," Review of Financial Studies, Society for Financial Studies, vol. 23(9), pages 3469-3519.
- Brent W. Ambrose & Hugh O. Nourse, 1993. "Factors Influencing Capitalization Rates," Journal of Real Estate Research, American Real Estate Society, vol. 8(2), pages 221-238.
- D. Ling & J.Fisher & A. Naranjo & J. Fisher & A. Naranjo, 2007. "Commercial Real Estate Return Cycles: Do Capital Flows Matter?," ERES eres2007_215, European Real Estate Society (ERES).
- G. Donald Jud & Daniel T. Winkler, 1995. "The Capitalization Rate of Commercial Properties and Market Returns," Journal of Real Estate Research, American Real Estate Society, vol. 10(5), pages 509-518.
- Sivitanidou, Rena & Sivitanides, Petros, 1999. "Office Capitalization Rates: Real Estate and Capital Market Influences," The Journal of Real Estate Finance and Economics, Springer, vol. 18(3), pages 297-322, May.
When requesting a correction, please mention this item's handle: RePEc:jre:issued:v:30:n:3:2008:p:249-292. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (JRER Graduate Assistant/Webmaster)
If references are entirely missing, you can add them using this form.