Do you think cap rates don't matter in CRE?

[Shane Thomas]

Cap rates are arguably one of the most fundamental metrics in commercial real estate investing AND probably one of the most debated and misunderstood topics in this space...

Lately, I have heard a lot of discussions around "cap rates don't matter" 

Which was surprising to hear. 

When I started off in this industry, the understanding of cap rates was crucial for garnering any respect in this business.
It is common to think of cap rate as a number represented by the following formula:

But I believe the best way to think about a cap rate is as a measure of risk. All investments involve risk and evaluating risk is what prudent investors do best. 

Most investors are buying property for cash-flow (i.e. income). If you are buying income producing property, then I believe cap rates DO matter and I explain why in the article below. 

I'm interested to hear your thoughts on this!
How do you think about cap rates? Their importance, especially in uber competitive markets?

[Greg Dickerson]

Originally posted by @Shane Thomas:

Cap rates are arguably one of the most fundamental metrics in commercial real estate investing AND probably one of the most debated and misunderstood topics in this space...

Lately, I have heard a lot of discussions around "cap rates don't matter" 

Which was surprising to hear. 

When I started off in this industry, the understanding of cap rates was crucial for garnering any respect in this business.
It is common to think of cap rate as a number represented by the following formula:

But I believe the best way to think about a cap rate is as a measure of risk. All investments involve risk and evaluating risk is what prudent investors do best. 

Most investors are buying property for cash-flow (i.e. income). If you are buying income producing property, then I believe cap rates DO matter and I explain why in the article below. 

I'm interested to hear your thoughts on this!
How do you think about cap rates? Their importance, especially in uber competitive markets?

CAP rates are only relevant when evaluating and or valuing stabilized assets. If you are an opportunistic or value add investor the CAP rate is not a meaningful gauge of the investment.

Class is the best indication of the risk of an investment property not CAP rate. A seller can price an asset however they choose. CAP rate is only representative of an un-levered return. Location, age and condition are much more important metrics when evaluating risk. Example would be a half vacant D class property priced at a 2 CAP based on actuals. Likewise you could have a motivated seller selling a fully occupied Class A asset at 7 CAP. The class of asset and area is what better represents risk not CAP rate.

 Lastly you gain respect in the industry by performing, by doing what you say you will do, closing on your contracts and successfully taking deals full cycle.