This weekend I was reading with serious interest an annual report published by the appraisal firm Integra Realty Resources.
They do a nice job of laying out detailed data for major markets across the country.
I was specifically interested in what they had to say about Capitalization Rates, Discount Rates and Reversion Rates. Here is what they report for Class A Industrial in Salt Lake City:
Going In Cap rate: 7%
Discount Rate: 7.75%
Reversion Rate: 7.5%
This tells me that NOW is a good time to sell for two reasons. The Going In Cap Rate at 7 percent is 50 basis points less than the anticipated rate a seller will get when they sell in the future. Buyers are willing to buy at a premium versus what they expect to get in the future. This may speak to bullishness on appreciation, or rent growth, but the bottom line is buyers in the future will expect a higher returnaccording to this report. Additionally, the Discount Rate, sometimes referred to as hurdle rate, or yield target is 75 basis points higher than the reported going in cap rates. This means that Class A Industrial properties are selling at a price above what a buyer would target in order to achieve their targeted yield.
Salt Lake City is slightly below the national average cap rate of 7.11%, but I would not be surprised to see some additional cap rate compression in our market due to the spread between our cap rates and other major western markets, and due to the severe lack of available Class A product for sale here.
2015 could be the year we look back on and say one of two things. 1. “That was the best year to sell since 2007” or 2. “Gosh, I should have sold in 2015”
Whether you are in the market to sell OR buy, at IPG Commercial Real Estate we will do our best to help you make the right decisions right now and in the future. Drop us a line and we can chat about your specific situation.