A Cross-Sectional Analysis of Cap Rates by MSA

44 Pages Posted: 23 Jan 2008 Last revised: 12 May 2014

See all articles by Doina Chichernea

Doina Chichernea

University of Denver - Reiman School of Finance

Norman G. Miller

University of San Diego - Real Estate Institute

Jeffrey D. Fisher

Indiana University - Kelley School of Business - Department of Finance

Bob White

Real Capital Analytics (RCA)

Michael Sklarz

Collateral Analytics

Abstract

Much attention has been paid to capitalization rates or cap rates defined as the net operating income over transaction price, also known as a going-in current yield on commercial real estate when calculated at the time of purchase. There are a number of global factors that drive capital markets and required rates of return that help to explain observed cap rates over time, but little is known about the factors driving the geographical cross-sectional variation of these cap rates. This paper uses data from Real Capital Analytics for multifamily properties to explore several models that combine the expected influences from housing demand growth, supply constraints, liquidity risk, and the interaction of these. The findings reveal that there is a very strong and robust relation between supply constraints and cap rates, as well as evidence of capital flowing from larger markets to smaller markets in recent years. The findings also reveal weak but generally supportive evidence of influences from expected growth rates, liquidity, and other risk factors.

Keywords: Multifamily properties, cap rates, housing demand

Suggested Citation

Chichernea, Doina and Miller, Norman G. and Fisher, Jeffrey D. and White, Bob and Sklarz, Michael, A Cross-Sectional Analysis of Cap Rates by MSA. Journal of Real Estate Research (JRER), Vol. 30, No. 3, 2008. Available at SSRN: https://ssrn.com/abstract=1086392

Doina Chichernea (Contact Author)

University of Denver - Reiman School of Finance ( email )

2101 S. University Blvd
Denver, CO 80208
United States

Norman G. Miller

University of San Diego - Real Estate Institute ( email )

San Diego, CA
United States

Jeffrey D. Fisher

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States
812-855-7972 (Phone)
812-855-5875 (Fax)

Bob White

Real Capital Analytics (RCA) ( email )

110 Fifth Avenue
7th Floor
New York, NY 10011
United States

Michael Sklarz

Collateral Analytics ( email )

United States

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