![]() ![]() While cap rates are invaluable, they are not the sole metric investors should rely on. Even if you don’t close on a given deal, retaining that cap rate adds context for future benchmarking and analysis. Instead, cap rates are best used as a comparison metric against similar properties. Tracking cap rates from target markets in a deal management platform also allows your firm to develop competitive intelligence. While cap rates offer one perspective on the property’s potential, they won’t necessarily provide value in a vacuum. ![]() High cap rates, conversely, indicate that the property’s price is relatively low and will potentially yield high returns-albeit with added risk. When a cap rate is low, the property has a relatively higher value and lower risk. This risk is measured based on the amount of time it takes for an investor to recover their initial investment. Cap rates are measured as percentages, typically from 3-20%. The commercial real estate cap rate, or the capitalization rate, is one return rate figure that CRE investors rely on to gauge the risk and potential return of an asset or property. What Does Cap Rate Mean in Commercial Real Estate? (Definition) In this blog post, we’ll explain what commercial real estate cap rate means, how to calculate it, and how to scale your pipeline by seamlessly memorializing and surfacing comparable cap rates. In other words, the cap rate illustrates the deal’s potential ROI. This helps investors to understand the deal’s risk profile compared to other similar opportunities. ![]() The commercial real estate cap rate of a property offers a glimpse into both the risk and return. One lens through which investors evaluate a new deal’s income-generating potential is calculating its commercial real estate cap rate. This blog post was last updated on December 8th, 2022. ![]()
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