The Real Estate Capital Scoreboard® – June, 2021

Chicago, Illinois, June 1, 2021 – The domestic economy momentum continues an upward trajectory since bottoming out from the pandemic last spring. The unemployment rate is now about half as low, the stock market and other financial indicators hit record levels. The real estate capital markets are riding the boom as well, as illustrated by the capitalization and mortgage rates:

Cap Rates: Overall capitalization rates for CRE assets range from 3.5% to 8%, with a wide variance based on property type, grade, and cash flow quality. Capitalization rates for prime multifamily assets dip down to the mid-3%-range, Industrial properties price slightly higher, with net-lease commercial properties not far behind, hovering in the 4%-5% range. Retail and office projects indicate higher risk, falling within the 6%-plus-range. And lodging properties show more recovery hovering in the 7%-or-more range as travel and meeting business returns. Non-prime properties in various asset categories typically offer widened pricing by 50 to 100 basis points.

Mortgage Rates: Despite inflation fears, interest rates remain tame. Cheap debt drives low caps. Even as benchmark rates rose over more than fifty basis points since the beginning of the year, mortgage rates stay low. Lenders absorb tighter spreads due to more comfort with improving realty market fundamentals. Short-term debt for prime assets dips below 3%, while longer-term perm loans hover in the 3% to 3.75% range.

The Real Estate Capital Institute’s® Director, John Oharenko, suggests, “Less economic [and cash flow] uncertainty translates to better pricing in what continues to be a seller’s market.”

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