How to objectively determine CAP rates in a market / sub-market?

[Jeff Owen]

Is there an objective resource to use to determine the CAP rate for a commercial multi-family property? I want to be armed with better information than just what the seller's agent is providing me. I'm not finding a lot of tools that I can use, and even looking at recent sales may not give me enough info to back into the CAP rate unless I happened to also have the P&L info for the property.

Your thoughts are greatly appreciated!

[Jonathan Orr]

@Jeff Owen I am sure you know that CAP rates are determined by dividing your NOI over PURCHASE PRICE. You can then back into a CAP rate or if you want to determine a price via cap rate then divide NOI by your CAP rate. To find cap rates, that is determined by the market (look on loopnet, local brokers for comps, etc...). If you are trying to find where your local cap rates are trending, CBRE put out a nationwide average cap rate for different asset classes in top 20 cities, that may be a good start.

To do all of this, as you mentioned you need to have a P&L on the specific property. Prior to writing a LOI or making any offer the owner or broker should provide you with that P&L. If they wont provide you a Trailing 12 P&L (big red flag).

Hope this helps