More on Cap Rates
The previous post touched on cap rates. If the building discussed in the article, One California Plaza, sells for a 7.5% cap rate, to me, that would be a good sign for the commercial real estate. The building has vacancy, leasing and finance issues, all that would lead to a higher cap rate compared to a similar property without the issues. From what I have been able to read, cap rates are more of an estimate now due to the lack of transactions. One thing everyone is saying though is that cap rates are higher than their record lows in 2007, how much higher is not known. I was at a meeting Tuesday where it was stated that Class-A institutional quality apartments are trading at 8% cap rates. This seems high, but we'll see. If One California Plaza sells at a 7.5% cap rate, it makes sense that the cap rates for more stable office buildings in Los Angeles would be closer to 6.5% to 7.0%. The Wall Street Journal reported yesterday that cap rates for office space in central business districts was at 6.86% in March, down from February's 7.53%, a surprising trend reversal.