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Tucson Commercial Real Estate Frequently Asked Questions* * Actually - - PowerPoint PPT Presentation
Tucson Commercial Real Estate Frequently Asked Questions* * Actually - - PowerPoint PPT Presentation
Tucson Commercial Real Estate Frequently Asked Questions* * Actually no one has asked them, but I will answer them anyway! FAQ #1 Was the 2008-2011 Recession the Worst in Tucsons History? Weve been through this kind of recession
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We’ve been through this kind of recession before. Here are the comparisons:
1992 Recession 2009 Recession 2016 Recovery INDUSTRIAL VACANCY 18.9% 17.5% 7.8% RETAIL VACANCY 12.8% 12.5% 6.4% CLASS A APARTMENT VACANCY 16.4% 9.9% 6.9% OFFICE VACANCY 21.4% 16.9% 11% SFR BUILDING PERMITS 2,074 2,077 2,928
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FAQ #2
Did Commercial Real Estate Get Hammered the Same Way that Residential Real Estate did During the Recession?
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I never understood cap rates. Is there any reason to?
FAQ #3
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Understanding Cap Rates
- I = Income (Net Income/Year)
- R = Cap Rate (The investment
return as a percentage of the value of the investment)
- V = Value (The investment value
based on the net income and cap rate)
R V I
“IRV” USE THE RULE OF THUMB!
÷
x
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Example:
McDonald’s Lease Income: $100,000/year Investor Requires a Cap Rate of 5.5%/year Investment Value: ???
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Investment Value: $1,818,182
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FAQ #4
What Happens if Interest Rates Increase?
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Effect Of A 1% Interest Rate Increase On Real Estate Values:
Over time, cap rates track interest rates, so as interest rates increase so do capitalization rates. When cap rates go up, the value of the real estate investment goes down. In the McDonald’s example:
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- If interest rates go up by 1% next year, it is likely the cap
rate that investors would pay for that income would go up, and the value would decrease. The difference: $279,721 in lost investment value 2016 Value Potential 2017 Value
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FAQ #5
Is the Commercial Real Estate Market Bifurcated?
Good Properties Bad Properties
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FAQ #6
Will Amazon and Ebay Spell the End of Retail Stores?
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FAQ #7
What about Workforce Policy?
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