Effect of Interest Rate hikes on deals? How are investors responding to interest rates hikes especially on low cap rate properties?
Is someone else also finding it difficult to close deals especially investment properties with cap rates hovering 6.2% to 6.5% in retail?
[{"id": "irpttgx", "text": "Lots of new terms sheets\u2026", "replies": [], "depth": 1}, {"id": "irpv9zq", "text": "Deals were halted for a while, everything has been / is being re-underwritten. Esp multifamily. A deal could absorb the hits from runaway construction estimates or rising rates, but not both. At least prices for lumber and other raw materials have normalized in recent months. But prices for finished goods aren't coming back down, a lot of price discovery has occurred.", "replies": [{"id": "irtlh3i", "text": "Sure lumber is down, but MEP is still a cluster.", "replies": [], "depth": 2}], "depth": 1}, {"id": "irqes28", "text": "6.2 to 6.5?? I\u2019m in SoCal\u2026.people are still buying Starbucks and other QSR deals at 3.75 and 4% Cap rates. \nAll this other crap hitting the market is in the high 4 low 5 range (shopping centers). AND all of it is being peddled as \u201cvalue add\u201d.", "replies": [{"id": "irrhuyz", "text": "Same, I\u2019m not seeing a ton of 6 caps.", "replies": [], "depth": 2}, {"id": "irsewly", "text": "With the cost of debt &gt;= 4%, how do the CoC returns look relative to the going-in cap rate?", "replies": [{"id": "irsobvh", "text": "What is a going-in cap rate?  Where do you get it?  What does it tell you?", "replies": [{"id": "irsyu3j", "text": "Your \u201cgoing in\u201d cap rate is your forward twelve month (upon acquisition) NOI over your purchase price inclusive of all costs. It\u2019s helpful for analyzing if you have positive or negative leverage (as well as as helping determine the reasonableness of your exit cap and discount rate assumptions).\n\nPositive leverage occurs when the cap rate is greater than your debt costs, which means the return on equity will be greater than the cap rate. Negative leverage is just the opposite and defined as when the cap rate on a property acquisition is less than the cost of debt (or debt service)  and therefore, the cash-on-cash return is less than the cap rate. \n\nWhen negative leverage occurs, this means the cash-on-cash return or return on the investor\u2019s equity is less than the cap rate and this is usually a \u201cpencils down\u201d scenario.", "replies": [{"id": "irt4ddb", "text": "I've always used cap rates from closed sales to determine the probable market value.  Where are you getting your purchase price?", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}, {"id": "irtouh1", "text": "Seeing industrial warehouse deals for class A in the 3.75-4.25 cap range.  Client appetite/bankroll dependent, but I have one particular large client that just underwrote an acquisition that was negative for the first the years.  With how crazy market rents got over the past 18 years, they estimate anywhere from 80%-100% below market at current time.  WALT of just over 3 years.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "irqsp32", "text": "I live in a hot market and have some clients that do internal financing/construction. They're still going full-steam ahead with looking to close five of the largest deals they can find this year. Some of the small, local, retail tenants are becoming a little wishy-washy though.", "replies": [], "depth": 1}, {"id": "irr4okl", "text": "New values. Just depends when sellers agree. \n\nAlso escrow holdbacks. Can be win win post closing.", "replies": [{"id": "irsy3ub", "text": "Can you explain escrow holdbacks pls?", "replies": [{"id": "irwa38x", "text": "Let\u2019s say a lease is ending soon, LL assures buyer that T will renew but T refuses to renew before closing. Escrow an amount that represents the risk of non renewal. \n\nGets the deal done say before year end but buyer has less risk with his purchase price.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "irylafg", "text": "Multi-family is trading close to a 4.5% cap after the cost of debt rose 100bps in the last 2 months\u2026 with fixed rates at 5.5% groups are struggling with the negative leverage. Bridge is out of the game and the low levered guys are on the sidelines until there is better clarify on where the bottom might be. \n\nQ4 is going to be very slow and I don\u2019t expect it to pick up anytime soon\u2026 interesting year ahead", "replies": [], "depth": 1}, {"id": "is42zfh", "text": "It\u2019s all about levered CoC return and yield my friend", "replies": [], "depth": 1}]