Cap Rates are reaching Record Lows – Crash soon?

Posted by admin on June 3, 2015 under by Tim Davis, Good Info - Read It | Be the First to Comment

We have written a lot about current cap rates, the low(zero) interest rate environment, and how the commercial real estate sector will adjust once the interest rates move upward.  Below is a nice chart created by Wells Fargo, showing the 5 major property classes of CRE, on a chart with the current 10-year treasury yield. As you can see, the risk premium (or spread) between the CRE products and the treasuries are still wider than they have been for the last 20 years.

Simply put, CRE is still a greater return on investment than treasury bonds by the widest margin in 20 years.  There is room for interest rates to go up, and investors to still have substantial positive leverage on their investments at the current cap rates.

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