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We've seen a POWERFUL SHIFT in exit cap rates! Dive into this fresh analysis from CBRE Research - Prime Multifamily Cap Rates soar in Q3, thanks to steeper rates. Going-In vs. Exit Cap Rate Spreads 2021 spread: +75 bps 2023 spread: +15 bps Is it possible that this figure turns negative in the upcoming year? This is a KEY variable in any proforma. How are the other variables changing? At a 0.15% spread between going-in and exit cap Sponsors don't need to UW to hit massive NOI increases Like they did when their spread was 0.75% How are you underwriting exit cap rates? Drop it in the comments below. ---------------------------------------- Unlock perfect financing solutions for multifamily assets with my help.🔑 Follow me and hit the 🔔 for invaluable tips, every day. The postings on this site are my own and do not represent the positions, strategies or opinions of CBRE.
How about that!?
I'm making our exit cap rate assumption higher for older assets but more aggressive for newer assets in well located areas.
Great topic. I take the current 10 year treasury yield and add 200-300 basis points depending on quality of the deal and asset type. However, I rely more on hitting my stabilized return on cost metric since it is so hard to feel confident about where rates will land
Assuming you mean value-added multifamily, which a majority of these posts are about, if you’re not getting at least a 200 bps delta between going in and exit cap, you’re going to lose in this market. Not even worth playing.
Hey Brad, I have a prime Austin deal I’d like you to invest in. It’s going to deliver a 6% unlevered IRR (hopefully…I’m ignoring the impact of massive over supply), and I can’t put debt on it because it costs more than my return so the lender would make more than I do (so sorry, you don’t get the debt assignment cause there is none). Interested???
We would normally factor in an escalation 10-15 bps per year and be sure the the business plan can conservatively increase the NOI to cover this escalation.
Amazing insights on the shift in exit cap rates! Exit cap rates should be 50 basis points higher than entry cap rate. Cap rate increases price of property is falling, but should have value add to increase NOI. Brad Peters
Monitoring exit cap rates is crucial in the ever-changing real estate market Brad.
Your insights are spot on, Thanks for sharing this data Brad.
🔍 Helping multifamily owners find great loans (>$10 million) 📈 Team has produced over $21 Billion in loans since 2011 🔬 Let's talk details and strategy!
1yLink below if you want to see the source material from CBRE Research https://www.cbre.com/insights/briefs/higher-rates-push-up-prime-multifamily-cap-rates-in-q3