Many owners underestimate the significance of NOI and the impact increasing cap rates have on value. The Fed has raised the Federal Funds Rate nine times in the last 12 months. The total impact on cap rates has yet to materialize (stressing the word ‘total’) and the ‘expectation gap’ between sellers and buyers remains significant. The author in the attached article draws the corollary between cap rates, NOI and value in her example noting that a property with $1.40 million in NOI and a 4.00% cap rate equates to a value of $35 million. For the same property in a 5.00% cap rate environment, the value equals $28,000,000. For the property to maintain its $35 million valuation at a 5.00% cap, NOI must increase by $350,000 to $1.75 million. Increasing NOI by 25% in one year? A tall order to be sure….

 

Svikhart & Associates, a Salt Lake City-based real estate services company, focuses on asset management and the entire scope of a multifamily  investment. Specific diligence is on property operations and strategies to maximize asset performance and value. Additionally, the firm assists owners regarding economic, financial and market factors that impact returns on investment. The firm targets ‘Mid-Tier’ assets (10-to-60-unit properties) and provides a full range of brokerage services for property listing and sale.

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