Commercial/ More than Just a CAP Rate!

[Paige Kelsey]

Helllooow CAP rate chasers! I am writing today as I have too have made this mistake! I bought a " great deal, " but did I? The fact is that I had failed to really look at the market trends for the city. When people talked about due diligence I focused on the property and not the outside factors that would effect that property. When leases dried up and I didn't sell, would I be able to rent? Mistakes were made and those mistakes added up to thousands for my husband and I. Fast forward to now, I am a broker in Vancouver, Washington. Portland and Vancouver, Washington are just miles apart but trends from one city to another or even one neighborhood to another can vastly effect your bottom line. Sure, people look at a 1.5 billion dollar project on the Vancouver waterfront but what do you really know? The fact is that, there are so many other factors to consider. How strong is the Chamber of Commerce for example? Here in Vancouver, there was a 10 million dollar short fall for the police.City council had proposed an additional tax on businesses which the Chamber was then able to negotiate and help the city find the money in different ways having a lesser effect on businesses. Things like this will / could have a long term effect on businesses being able to afford your rents. I guess what I am saying here is if you are not from an area, expand what due diligence is for you to the larger picture. If there is one time to go local, this would be the time. CAP rates mean nothing if you don't have a bigger picture of what is happening in the area and in the market for what you are buying. Hopefully, we can all learn from one another's mistakes, this was a take away from me for sure on one of my own. Love to hear what else you look for other than just the numbers on a deal.

All the best!

Paige  Kelsey

KW Commercial

[John Warren]

@Paige Kelsey thanks for sharing your experience. I hope that your property pulled through and ended up being a "winner". The trouble with cap rates in my Chicago suburban market is that they seem to be almost irrelevant for people purchasing anything from 5-10 units. It appears that these properties are almost sold based on comparables. They are also being sold on pro forma cap rates quite a bit. One property in Berwyn was recently marketed to me at a 4.8 cap with the pro forma numbers showing just below a 7!