What are the points to be considered while determining cap rate during market downturn period.

In General Area - Asked by Manju S. - Mar 18, 2009
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Richard G.
Tavares, FL

An overiding point is the strength of the tenants and the leases that back up the CAP rate. Is the present income a floor from which you can expect some upward movement with time? Do your lease rates reflect present market reality? If rates are too high, your tenants may be looking for a reduction in lease rate (based on comparable properties) in exchange for them staying in your building. How moveable are your tenants? If they have little infrastructure investment in your space they may be able to move easily - thereby leaving you with empty space.

Mar 19, 2009
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