Cap Rates will the stay low or increase with higher interest rate

[Chris Brown]

Interest rates for multi fam loans are up about 1% since the summer. The fed wants to raise rates to 2.5-3% over the next few years. How will this impact cap rates? Will investors take the long view and suffer less cash flow for a few years expecting to refi at lower rates or will cap rates increase 20%, 1- 1.5% and building prices fall 20%? 

[Russell Brazil]

It is important to note that a cap rate is a snap shot in time and that is something people often forget. An asset in a highly desirable area will often have a low cap rate not because an investor is willing to take a lower return, but rather because high rent growth is priced into the assets value creating that low cap rate.  

Additionally cap rates are a measure of the markets perceived risk in an asset often. A high or low cap rate does not necessarily correspond to a high or low return.