Many investors assume a direct correlation between cap rates and interest rates – that borrowing costs will drive investor purchase decisions, and that sellers need to lower prices and raise cap rates as a result.
But while there's some truth to that, according to Marcus & Millichap's John Chang, "that doesn't completely hold true."
Looking at commercial real estate in general, the spread between the average cap rate and the 10 Year Treasury has been as low as 214 basis points, he said—and "there's simply a lot more going on in CRE than underwriting to a spread over the cost of capital," Chang says.
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