ERIC STOREY, CPM
“It is a better deal to buy proper- ties than put money in the bank
these days,” said Eric Storey, CPM, of
Zions Bank in the education session
that discussed the trends and differences between interst and cap rates.
Simply put—interest and capitalization rates are relevant to CPM
Members managing commercial
properties because they assist owners in reaching their financial goals.
These rates are related to the financial performance of the asset.
Across the various types of properties, the lowest cap rate is 5. 6 percent for urban multifamily, the highest is 11. 3 percent for lodging and the
average across geographic areas and
property classes is 6.71 percent for
commercial real estate.
Interest rates vary due to the time
and risk associated with a particular
type of investment—they tend to not
be impacted by location.
The Federal Reserve was created
by U.S. Congress in 1913 to implement monetary policy. It is made up
of a Board of Governors. There are
12 Federal Reserve banks, which are
part of the Federal Reserve System.
Cap rates are influenced by a wider
network of variables beyond interest
rates. They vary from property type
to property type and from place to
place. The government has no direct
impact on setting cap rates.
Although it seems counterintui-tive, cap rates have historically been
fairly resistant to the pressures of rising interest rates.
Interest rates have been at historic
lows for the past eight years. Most
experts agree that interest rates will
rise in the future. However, since
interest rates do not influence cap
rates, there is no correlation between
the rise and fall of interest rates to
that of cap rates.
Based on history, if interest rates
rise, cap rates will not change much
and the spread between interest rates
and cap rates will remain at approximately 300 basis points (three percent) over time.