Typical CAP rate for office condos?
Trying to sell an office condo in metro Atlanta and it seems like they go for way higher than around the 8% range that retail shopping centers go for.  Anyone have an idea of what they typically go for and why?
[{"id": "en47nlh", "text": "If the center is in a desirable area of town? Does  the center not need any work? Are the leases long term? There are a ton of factors that go into a cap rate. If you are on the positive side of these questions, then 8% is an attractive CAP rate to investors.", "replies": [], "depth": 1}, {"id": "en48y9d", "text": "Your local broker and lender will know better than anyone.", "replies": [], "depth": 1}, {"id": "en4a0es", "text": "Aren't office condos typically owner occupied? Look at comparable sales for a good indicator of value then you can back into a cap rate with your property's financials. \n\nOr look up rents on condos and apply that to several comparable sales. That will give a glimpse of cap rates.", "replies": [{"id": "en4axkn", "text": "Yes they are typically owner occupied but I bought one as an investment and I lease it out. I'm offering for sale at over 10% cap but I'm not getting much interest. \nOther issue is that there aren't many comparable properties/units in the area. \nDoes anyone have a general idea of typical CAP rates for office condos or office space?", "replies": [{"id": "en4dedm", "text": "What if you sell it to the tenant? I doubt there is much of a demand for office condos because the tenants are high risk and releasing it could be 9 months or longer. So unless it is a medical tenant, it may sit there for a long while.", "replies": [], "depth": 3}, {"id": "en4ouj3", "text": "It\u2019s going to be very different depending on what market you\u2019re in. I\u2019ve literally never seen any property at a 10% cap rate in my area and I review about 60 commercial appraisals a year. Even within a market, cap rates can vary based on location, property condition and sq. Ft., it\u2019s typically arrived at after an appraiser knows what value he\u2019s shooting for in the income approach, will back into it via cap rate and then make sure that cap is \u201csupported\u201d in his analysis. If you were in my area, I would\u2019ve immediately thought in the 6.5% to 7% range but our real estate prices are pretty high here, so that probably doesn\u2019t help you too much.  If you could get the financial info of a comp or two you could back into a cap rate for those properties, otherwise, just see how it appraises.", "replies": [], "depth": 3}, {"id": "enjeqmb", "text": "In many markets, office condos are thinly traded. That means it's difficult to find good comps and also that you will likely have a longer time on market as you likely need to find a business who needs space at the right time vs. an investor who could buy at any time.\n\nCAP rates are higher for a commercial condo than an equivalent free-standing office building due to the lack of control for redevelopment, modifications to the space and condo fees/special assessments. Also in some cities, commercial condos are not favorably taxes compared to other property types.", "replies": [], "depth": 3}], "depth": 2}, {"id": "en5648g", "text": "&gt;Look at comparable sales for a good indicator of value then you can back into a cap rate with your property's financials.\n\nIf you have the value from comparable sales why would you even bother with cap rates?  The only reason I could think of is if the lease is long term, way above market, and a strong credit tenant which I doubt is the case here.", "replies": [{"id": "en56odl", "text": "OP asked about cap rates. I gave a method to ballpark cap rates.", "replies": [{"id": "en5b5jy", "text": "&gt; OP asked about cap rates. I gave a method to ballpark cap rates.\n\nFor what purpose?  If he has the value he does not need a cap rate.  No reason for him to waste time.", "replies": [{"id": "en5om48", "text": "There are not good sales comps which is why I'm trying to get a target CAP rate.", "replies": [{"id": "en5tqgk", "text": "&gt;There are not good sales comps which is why I'm trying to get a target CAP rate.\n\nUm, cap rates come from sales comps.  No sales, no cap rate comps!  Do you understand that?  Now there is a band of investment method used for large commercial properties but that is too complicated for an individual office condo.\n\nIs your tenant on a short term lease?  If so then if you really want to use an income approach look at GRM's from the past.  If gross rents have sold for generally 8GRM in down cycles and 10 GRM in Up cycles then you value is probably about 10 times market rents if you are in an up market.  \n\nI doubt you would even find a cap rate comp even if there were sales because there is no reason to waste time on a less accurate approach to value.", "replies": [], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "en4c11s", "text": "How large is the condo? A lot of what drives the pricing lower is the outdated structure, very small market for 1200sf office condo buyers vs 100ksf larger office bldgs.", "replies": [{"id": "en4rqpc", "text": "It's a second story 4,000 SF condo in a building with a lot of medical tenants.  It's definitely in a secondary market.  I doubt the current tenant can afford to buy but thanks for your suggestion.  \nI think u/the_remedy is right.  I'm probably better off selling it when it's vacant to an owner/user.  I don't think anyone wants to buy a single tenant office condo as an investment with a mom &amp; pop tenant.", "replies": [{"id": "en5djgo", "text": "That is definitely the case.", "replies": [], "depth": 3}, {"id": "en5ttk8", "text": "You figured it out.   Get the tenant out, and sell to an owner-user.", "replies": [{"id": "en8scc1", "text": "I wouldn't terminate the lease until you have an accepted offer.  A buyer may want a tenant until they can move or you can deliver it vacant.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "en4r3v7", "text": "These are typically designed for owner users as the end buyer.", "replies": [], "depth": 1}, {"id": "en55soh", "text": "Cap rates come from an income approach to value called direct capitalization.  It is generally used when a property has a NOI that consists of long term above/below market leases.  Probably the more accurate way to value your property is sales comparison.  \n\nWhere did you get the 10% number from?", "replies": [], "depth": 1}, {"id": "en5ymks", "text": "Extremely location specific. Get a broker", "replies": [], "depth": 1}]