Saturday, August 18, 2007

Cap Rates Need to Adjust for NNN real estate investments

If interest rates rise due to the higher risk associated with commercial lending, then cap rates need to rise appropriately. This adjustment is not evident in the market yet. Commercial sellers are like gas station owners, eager to raise prices on the rumor of a shortage in gas, and reluctant to lower prices when the cost of oil drops. Eventually there will be a slowdown of sales activity and an increase in commercial inventory. This will prompt realistic, motivated sellers to reduce their prices and raise cap rates. If we all could cooperate sooner, that would be best for everyone.

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