2006 year for going back to basics, say researchers.Citing 2006 as the beginning of "the post-cap rate compression era," representatives of market research specialists, Torto Wheaton, told journalists at CBRE's 2006 forecast presentation that cap rates will be on the rise in all commercial property sectors in 2006. During the last three years, more than 100% of asset appreciation on total returns has come from cap rates. This cap rate contribution will disappear next year. "There's been a long period of cap rate compression. What has transpired over the last few years is going to change," said Craig Thomas Craig Thomas is a name shared by the following individuals:
contraction, in physics: see expansion. contraction, in grammar contraction, in writing: see abbreviation. contraction - reduction is going away. It's an abrupt change--one we haven't seen before. It's no longer about the cap market, it's about managing rental income Noun 1. rental income - income received from rental properties income - the financial gain (earned or unearned) accruing over a given period of time ." Cap rates are expected to rise because the 10-year-treasury is above the risk-free rate Risk-free rate The rate earned on a riskless asset. . The research firm expects that, by the second quarter of 2006, the 10-year-treasury will have risen to 5.16% and to 6.16% by the second quarter of 2007. It stood at 4.16% at end of the second quarter of 2005. The company also expects the real estate industry to go back to fundamentals in 2006, according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. Raymond Torto, the firm's principal and chief strategist strat·e·gist n. One who is skilled in strategy. Noun 1. strategist - an expert in strategy (especially in warfare) strategian market strategist - someone skilled in planning marketing campaigns . Torto said that, from now on, rates will be in the single, rather than double, digits. Interest rates are also expected to go up with cap rates. While Torto "[does] believe there's a bubble," he said that there's no imminent threat Imminent threat is a standard criterion in international law, developed by Daniel Webster, for when the need for action is "instant, overwhelming, and leaving no choice of means, and no moment for deliberation. of a crash. He projects that prices will stay high with moderate growth in cash flows and lower returns. "The industry is in better shape," he said. "We won't see a pricing collapse ... There will be no great crash." Investors still need to stay on their toes, though. They shouldn't base their 2006 deals on the trends of the past few years. "People whose expectations are based on the last few years are going to be unhappy," Thomas said. Both Torto and Thomas agree that it's important for investors to do their homework and get to know local markets. "People making money will have picked the right sectors," Torto said. "Picking the right market is important." |
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