Sage Auction Blog

Cap Rates, where are they now?

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While everyone understands the commercial real estate markets are in trouble, few comprehend the problem’s full magnitude. Values have dropped in most markets, but the amount of adjustment is difficult to ascertain due to the lack of transactions.

Earlier this year, Green Street Advisors, a real estate investment trust advisory firm, described the economy’s impact on commercial real estate as a one-two punch. Green Street predicts that capitalization rates will return to pre run-up levels due to more-expensive debt and increased return requirements. It's called the “969” phenomenon, which is a pattern of cap rates, not an area code. In other words, cap rates were close to 9 percent for many sectors early in the decade, dropped to 6 percent in the easy-credit environment, and will return to the 9 percent level when the market stabilizes.

Real Estate Brokers don't make good Auctioneers

I've been approached by a number of real estate brokers over the years wanting to get involved in real estate auctions. Most simply want to do a few auctions when things get slow or to be able to say to clients that they can conduct auctions so they don't lose a sale to the local auctioneer.  A very, very small percentage ever make very good auctioneers.  Not because they can't learn how to chant, it really has very little to do with their ability to learn how to bid call. It has to do with the nature of their business model as compared to that of an auctioneer.  I've come to learn that it has nothing to do with their outlook on our business or whether they are good or bad people, it really doesn't have anything to do with that. It's just the differences in how brokers looks at a real estate transaction and how an auctioneer looks at a real estate transaction.