Hey commercial folks.....just wanted to make sure you were aware of the status of the cap rates in today's markets. In most markets, the cap rates adjust for certain types of commercial transactions - like retail vs. office, or industrial vs. investment properties. Therefore, be aware that the cap rates are edging upward toward the 8% range and above for transactions. Remember, the cap rates is a method that an investor uses to evaluate the risk, reward, and total value of a transaction. It's calculated by determining a value of real property and by considering net operating income divided by a predetermined rate of return. So, it has an inverse relationship to the sales price. The higher the cap rate, the lower the sales price and vice versa. Keep that in mind when you are considering a deal that you are evaluating. Happy hunting.....

Hi Mr. Baker,

What is your expectation of cap rates over the next few years?  Where do you think we are at in the cycle? 

 Those are great questions and I would have to say that I can only give you my opinion from what I read, study, and see in the market here in SoCal.   The cap rates vary with different types of properties, but in general I think we will see cap rates well in excess of 8.0% for most commercial types of properties.  Some properties are already approaching a 9% cap rate today!  Although,  I don't see them going beyond a 10% cap.  The experts predict that we are still a couple of quarters, if not 3-4 quarters away from this correction and we won't see positive changes in pricing, etc. until everyone is convinced that we are on the road to recovery.  The office market specifically will lag, due to it's availability glut and Orange County is better positioned than L. A. or the Inland Empire areas for recovery. The Inland Empire is going to struggle due to their massive availability of space that has been constructed over the past couple of years in both commerical and industrial space.  Look for the employment numbers to improve before the market will change!