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What is Your Real Estate Cost of Capital?

WALNUT CREEK, CA-Many REITs and private real estate companies don't know the answer, but they should, because it's the minimum rate of return a company must achieve on its investments to increase shareholder value, says Joseph Ori in this EXCLUSIVE commentary.

By Joseph Ori, executive managing director, Paramount Capital Corp. | Updated on February 14, 2014

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WALNUT CREEK, CA-Many REITs and private real estate companies do not know their cost of capital. Cost of capital is the cost to a company of various components of its capital structure including debt, preferred stock and common stock. The weighted cost of all these components is the weighted average cost of capital (WACC). The cost to the company is the expected return to the various investors or owners who invest in each tranche of the capital structure. Equity REITs for example, have delivered an average annual equity return of 16.9% (according to FTSE-NAREIT Index) over the last five years. This is the return that investors expect in owning the common stocks of REITs and is a component of their cost of capital.

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