Is the rotation out of multi-family and into retail beginning?

Many of our investors have been long term buyers of a variety of multi-family properties, and the asset class seems to still make sense, even at increasingly tight cap rates. The rental market is being driven by two huge demographics: baby boomers looking to downsize and who want the flexibility of renting vs. owning, and millenials who are starting their careers carrying student loans and who don't want to be tied down to a long term house and mortgage. These trends seem likely to stay in place for a lot longer than anyone had anticipated. That being said, at some point cap rates just get too tight for our comfort level. When deals start getting done with a cap rate of 5.50 to 6.00, that

Relationship between interest rates and commercial real estate cap rates.

We came across a great analysis on the somewhat tenuous relationship between the 10-year US Treasury yield and the average capitalization rate (cap rate) of US commercial real estate. Written by Paul Muchakaa at Morgan Stanley, his thoughts are neatly summarized in this paragraph: "The current environment, where credit availability is growing, construction lending remains muted and demand is outstripping supply, may mitigate or even potentially offset any rise in cap rates. Thus, a singular focus on Treasury rate movements to the exclusion of other key explanatory variables may lead to sub optimal investment decisions." In other words, the cap rate that investors demand from commercial real

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    Prudent Growth Partners, LLC  (2017)    1829 E. Franklin St, Suite 800-F, Chapel Hill, NC 27514  (919) 590-4119