The View from 100,000 Feet
I used to work for a small company that was sold and became part of a very large company. One of the new management's cliches was that the senior executives were busy with the "view from 100,000 feet." I went from being impressed to disillusioned as it became evident that from 100,000 feet management could not see anything - sort of like flying over parts of the western United States on a moonless night. I had not thought about this inane cliche for awhile but was reminded of it today as I paraphrased it to apply it to the current real estate market - the view from 5.5% cap rates.

I pick 5.5% not as an exact number but as one to reflect cap rates at historic low levels. Some view lowered cap rates as a paradigm shift (isn't this another old cliche?) and some view them as a sign of a real estate bubble. Who knows and whoever is right, both face the same future. A future defined by limited capital appreciation and where income is the primary return component. How can cap rates fall much further, with interest rates creeping up and institutional interest rates above 6%? Income growth in the form of increased NOI through expense management and lease increases will be the path to success. Real estate purchased at today's cap rates that have limited lease growth will be tough to make profitable. The "view from 5.5% cap rates" is all about income and how to grow it.