Who are the investors buying 3%-4% CAP properties?
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[{"id": "fwbjxl6", "text": "Institutional buyers with too much capital to place. Wealthy individuals hunting for yield. Speculators who think rents will increase rapidly. \u201cFlight to quality\u201d folks.", "replies": [{"id": "fwbk8u6", "text": "Yep, and then the true outlier trades seem to always be UHNW people who are thinking about things in a completely different/generational way.", "replies": [], "depth": 2}, {"id": "fwbr51o", "text": "How do you find these buyers?", "replies": [{"id": "fwbuo0i", "text": "They find you", "replies": [{"id": "fwbvr97", "text": "Oooooo spooky!!!!", "replies": [], "depth": 4}], "depth": 3}, {"id": "fwbwfag", "text": "I\u2019m not a broker, but networking.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "fwbk1nb", "text": "Chy-na", "replies": [{"id": "fwbt71m", "text": "Mo-ney Laun-d-ring", "replies": [], "depth": 2}], "depth": 1}, {"id": "fwbkxxo", "text": "Buyers looking for fixed income comparing to bond yields under 1% and diversification.", "replies": [], "depth": 1}, {"id": "fwbmb4u", "text": "Is this a 3% - 4% cap in place and these assets have significant upside? Are they buying properties for the land value and plan to redevelop? There are so many reasons this could happen but if these are truly stabilized retail/industrial properties and trading at 4% cap rates or less, that is extremely aggressive capital. Multifamily less surprising assuming well located, but still priced to perfection.\n\nLikely worth giving the brokers a call on these deals to see if you can get the story, especially if you didn\u2019t actually get to see the financials. I think there\u2019s likely something more than hot money if you have multiple examples of these transactions.", "replies": [], "depth": 1}, {"id": "fwbmsb1", "text": "In my market, a cap rate below 4.75% corresponds with below market rent. \n\nIn-place caps in dynamic markets aren\u2019t particularly relevant anyway. I\u2019d much rather see how expenses and market rent growth are being projected.", "replies": [], "depth": 1}, {"id": "fwbon4h", "text": "Low cap buyers are usually due to 1031 deadlines, expectations of value appreciation, or asset repositioning/redevelopment\n\nThis is more true for individual buyers. Institutional investors on the other hand, require institutional assets, so their cap rates are justified around 4%.", "replies": [{"id": "fwbvlhz", "text": "Not really. Just institutions that are chasing yield. We\u2019ve seen this for over a decade and will continue to see it while rates are near 0.", "replies": [], "depth": 2}], "depth": 1}, {"id": "fwbp0o0", "text": "Depends where you are\nI'm in NYC and I have multiple solid 8% CAP Multifamily and retail just sitting", "replies": [{"id": "fwbpq6t", "text": "get the hell out of here...8% cap multifamily in nyc proper?", "replies": [{"id": "fwbqtts", "text": "There has got to be some really shitty fine print to that claim.", "replies": [{"id": "fwbr2hw", "text": "Right? Hahah glad I\u2019m not the only one calling bullshit", "replies": [{"id": "fwbrbgu", "text": "Must be like AEP RS buildings in the Bronx or something.", "replies": [{"id": "fwbyvmq", "text": "Nope, gut rehab rent stabilized in greenpoint and bedsty", "replies": [], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}, {"id": "fwbyd11", "text": "Yes, specifically Brooklyn, in the city I have 6 CAPS", "replies": [], "depth": 3}], "depth": 2}, {"id": "fwbrmxs", "text": "If you can't sell that either\n\n* It's nonexistent\n* You need a new profession", "replies": [], "depth": 2}], "depth": 1}, {"id": "fwbr70k", "text": "Mostly investors (typically 60+ in age) transitioning from hands on multi-family to NNN\u2019s (think 7-11\u2019s, Advance Auto Parts, corporate backed QSR\u2019s etc) with solid credit ratings, 8+ years remaining on lease). 85% of which are using a 1031 Exchange to defer taxes. In a world where 10 year good corporate debt is yielding 3-5%, NNN\u2019s with zero landlord obligations are desirable. I still believe Multi-Family has more upside for younger investors.", "replies": [{"id": "fwcfzpt", "text": "depends on location,  we're abandoning mf for nnn as fast as we can.\n\n1 bad tenant in 12-15 can put you in the red these days... it's not worth it", "replies": [], "depth": 2}], "depth": 1}, {"id": "fwbvgnz", "text": "4% cap is still a 300+ bps spread to the 10 year. Spreads are actually much wider now than historically over the past 5 years (typically 100-150). Perm debt for quality assets is pricing in the 2.65% - 3.50% range, so still positive leverage.", "replies": [], "depth": 1}, {"id": "fwbvq8q", "text": "Why is CAP capitalized?\n\nR + CR = Y\n\nThe going-in rate plus the change in value and income equals the yield.  So a property at an 8% cap rate that is stagnant in value has the same yield as a property with a 4% cap rate that is seeing 4% annual rent increases and appreciation.", "replies": [], "depth": 1}, {"id": "fwbw6cs", "text": "1031 uplegs", "replies": [], "depth": 1}, {"id": "fwbywtz", "text": "I love you and fully free market I have 6 CAPS", "replies": [], "depth": 1}, {"id": "fwc0u5b", "text": "Here in California, that is very common, especially with statewide rent control. A lot of multifamily properties here are sold on pro-forma. I have seen cap rates creep upward though since the corona hit.", "replies": [], "depth": 1}, {"id": "fwc2b3a", "text": "Everyone in here says it's dumb money or offshore money.  \n\nI have listened to very successful CRE brokers, many say that local REITs are buying similar assets.  So are those guys dumb?  Personally I don't believe it. \n\nI think the risk of a lcol city moving backwards in price is too high. HCOL is safety, inflation matching, and the potential for density increases.", "replies": [], "depth": 1}, {"id": "fwd7tid", "text": "&gt; Who are the people buying these and why?\n\n1. Appreciation. What do you think properties in Manhattan trade at? \n\n2. People who can add value to the property. Perhaps people who think the calculations were incorrect on the listing (e.g. listed at 3% but the potential investor thinks it should be 5.5% etc.).\n\n3. Investors who can borrow at lower rates.\n\n4. Investors looking to off-set gains/income. I had a client who used to buy tranches of sponsor/holder of unsold shares apartments (e.g. 100s units in random buildings at a time). Most of the units were running at a loss because the RRTs were paying lower rent than OpEx.", "replies": [], "depth": 1}, {"id": "fwdmy4l", "text": "From my experience, they are institutional investors with multi-billion dollar, incredibly diverse CRE portfolios across a vast geographical presence. They calculate risk on a whole other level, determined by quantitative risk-reward calculations. The vast majority of their CRE portfolios are stable assets with standard cap rates, however, they also strategically elect to invest in upswing potential assets with tremendous upsides.", "replies": [], "depth": 1}, {"id": "fwrjjtf", "text": "In my experience it\u2019s institutional or sovereign wealth funds who want trophy assets in CBD and the ROI calc is not as critical as \u201cbig name\u201d assets and being confident they can park a large amount of money that will at worst not go down in value much.", "replies": [], "depth": 1}]