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Overall Cap Rate Indices Decline For All But Healthcare/Senior Housing, Reports RealtyRates.com
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Added: 01/02/2004
Type: Summary
Viewed: 1927 time(s)
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Overall Cap Rate Indices Decline For All But Healthcare/Senior Housing, Reports RealtyRates.com
Largely reflecting a drop in Treasury rates to which most commercial real estate mortgages are indexed, composite overall capitalization rate (OAR) indices decreased during the 2nd Quarter for all but one of the 11 property categories tracked as part of the RealtyRates.com Investor Survey.
Decreases in some lender spreads (but sans corresponding decreases in debt coverage ratios), were also noted with regard to some property categories, as were a widening of equity dividend spreads with minimums declining somewhat.
The composite average OAR index for all property categories decreased 28 basis points or 2.6% from 10.82% in the 1st Quarter of 2003 to 10.54% in the 2nd Quarter. The most dramatic decrease was recorded by the volatile Special Purpose sector, down a full 111 basis points after a 138 point gain in the 1st Quarter. It was followed by the Office and Restaurant sectors with 57 and 48 point declines, respectively.
The smallest decrease was recorded by the Lodging sector with a 20 basis point decline, followed by the Industrial and Mobile Home/RV Park-Campground sectors, both of which dropped 31 basis points.
The nearly across-the-board decrease in OAR indices continues the quarterly roller coaster pattern that appears to be largely a function of the Federal Reserve's manipulation of interest rates, as the OAR index for all property types has actually remained relatively stable in the 10.32% to 10.89% range for 2½ years.
As to the 43 basis point increase noted for the Healthcare/Senior Housing sector, this is viewed as an overdue correction that RealtyRates.com analysts surmised from considerable recent anecdotal evidence and that is now confirmed by the data.
Overall capitalization rates reflect the relationship between a property's net operating income and sale price or value. As such, cap rates are widely utilized in the real estate industry to both measure a property's performance as well as estimate its value or probable selling price.
Headquartered in Bradenton, Florida, RealtyRates.com, operates a comprehensive, Web-enabled, integrated service designed to provide government agencies and private industry with timely investment, financial, and operating data essential to the evaluation, marketing, and disposition of income-producing property.
The firm's three quarterly market data surveys are widely utilized by banks, commercial real estate professionals, investors, developers, and property tax assessment authorities throughout the country.
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