CBRE CAP RATE SURVEY

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IN THIS ISSUE: Overview Office Multihousing Retail Industrial Hotels Hotel Appendix Appendix | Definitions Cap Rate Cap Rate Survey February 2013 > The going-in cap rate usually refers to the initial yield and is calculated as the ratio of the projected net income in the first year of the holding period over the acquisition price of the property. This measure also represents the investors’ income return in the first year, but also in subsequent years if NOI remains stable. Stabilized Property Cap Rates To derive the cap rate for a stabilized property assume the asset is leased at current market rents and has an occupancy rate in line with the long- run market average. Based on these assumptions, use the in-place NOI and the probable sales price to calculate the stabilized cap rate. Cap Rates (Office, Industrial, Retail, and Hotel) Cap rate ranges are best estimates provided by <strong>CBRE</strong> professionals based on recent trades in their respective market as well as recent interactions with investors. The ranges represent those cap rates that a given property will trade at in this current market. Stabilized cap rates are based on in-place NOI for the latest year, before being adjusted for reserves. Value-add cap rates are based on projected stabilized NOI. Actual cap rates within each asset class will vary, occasionally outside of the stated ranges, based on asset location/quality and property-specific opportunities for NOI enhancement. Cap Rates (Multihousing only) Cap rate ranges are based on an estimated NOI derived by annualizing the last 90 days of revenue and subtracting what buyers would estimate as stabilized, year one expenses after adjustments for real estate taxes and reserves. Actual cap rates within each asset class will vary, occasionally outside of the stated ranges, based on asset location/quality and property-specific opportunities for NOI enhancement. Value-Add Property Cap Rates (Office only) To derive the value-add cap rate use a sales prices that would be achieved by a property underperforming in its market, whether through abnormally high vacancy rates or through rents below those that are currently being achieved in the market. Assume the property is then stabilized to achieve market rents and an occupancy rate in line with the market’s long run average to arrive at a stabilized NOI. Use the stabilized NOI when calculating the Value-Add Cap Rate. 34
IN THIS ISSUE: Overview Office Multihousing Retail Industrial Hotels Hotel Appendix Appendix | Definitions (continued) Value-Add Property Cap Rates (Multihousing only) To derive the value-add cap rate use the return on cost based on the projected stabilized NOI value divided by the total investment. Stabilized Property A property that has an occupancy level at or above the local average and is leased at market rents. Value-Add Property (Office & Multihousing only) An underperforming property that has an occupancy level below the local average and/or is leased at below-market rents. CBD The Central Business District of a major city. Suburban Mainly residential area located within close proximity to a major city. Class A Best-of-class product, attract larger, top quality tenants with 5- and 10-year leases, often newer construction. Class B Older product, mostly 5-year leases, typically previously owned. Class C Typically an older building that offers space without amenities. Attracts moderate to low income tenants. Cap Rate Survey February 2013 > 35
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CBRE CAP RATE SURVEY

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