Cap rates to me are one of the most frustrating thing in this business. They are miss-used and miss-understood. Cap rates are essentially a sliding scale index of risk-return reward. Typically things that drive cap rate include tenant quality, term of lease, market, location and property. The more favorable these are, the higher the cap rate should theoretically slide (down for higher value). Cap rate also effects value, if you take the property NOI and divide it by the cap rate, you have a value. But listing a property at a 6% cap rate when all your offers come in at 8%, what is the value of building and what is the cap rate? Until the property sells, it is difficult to determine the validity of a cap rate associated with it as the market determines the cap rate, not the seller, not a broker, only when a buyer and a seller come together and agree on what the value of the property is can a cap rate really be derived. It is essentially a risk return that both the buyer AND seller agree on.
Apr 4, 2013