Cap rate compression

[Nicholas Burch]

Help me understand Cap rate compression. I've heard many different iterations of this strategy and I am starting to think this is a make-belief concept. From what I understand, a higher cap rate indicates the expected returns from a property harbor more risk, which means investors will pay less for the property. On the other hand, a lower cap rate represents a less risky property, and the investor will be more willing to pay above the property value to receive a lower yield. I know that this is far more than a evaluation of risk and there are more factors to consider than the correlation I've stated. What are your thoughts?