I can tell you from experience underwriting deals for a number of institutional and semi-pro investors that they have achieved IRRs greater than 15% and yields greater than 8% in markets like San Francisco, LA, NY, and DC that advertise 4% cap rates.Markets with low cap rates typically share the following characteristics:1) Strong rent growth, driven by2) Strong population growth, driven by3) Strong job growth4) Low vacancy5) High per bed rents (lower operating costs as a percentage of total rent)6) Good property management options7) Higher quality tenants (young professionals like myself will rent in SF until their late 30s to early 40s)To achieve returns in these markets, investors buy buildings with significant value-add or development opportunities on very low to no leverage (debt), and refinancing the deal after stabilization to cash out.

This is really helpful and makes sense based on how you describe your market characteristics.

An off market commercial property that I recently became aware of has some interesting characteristics about the deal that I am a little concerned about.

What characteristics do you personally look for when choosing a property management company?

The label of stock is dispositive if it has typical characteristics.

@Tariq K Frantz what often gets overlooked about these asset classes (and what Sam Zell relates to) is the long term success they are capable of creating, simply due to their intrinsic characteristics. 

Property appreciation is calculated based on repeat sales of the same properties, which can avoid the problem of trying to account for price differences in homes with varying characteristics.

Property appreciation is calculated based on repeat sales of the same properties, which can avoid the problem of trying to account for price differences in homes with varying characteristics.

This type of investment, however, is often bundled with a portfolio of other buildings of varying quality and characteristics. 

Boom and busts rarely occur as these markets keep chugging along and you also have "Hybrid" markets as the name implies, these markets exhibit a combination of linear and cyclical characteristics.