Cap Rates Under Pressure Amid 10-Year Treasury's Climb
When the cost of debt is so high, the return becomes lower than what the 10-year actually pays.
"For several years, I've been concerned that many real estate investors have been treating real estate as if it were day trading," Chopp said.
"For instance, considering retail as obsolete due to challenges stemming from an often-unprofitable model such as e-commerce is shortsighted. The typical real estate investment spans 5 to 10 years, and as a real estate investor, you would need the stability of your logistics tenants to survive that term, and then also not be stuck refinancing into in a low-demand market.
"In recent years, however, seemingly every other broker offering seemed to involve repositioning plays, driven by the rapid increase in real estate values and the prevalence of low rate, floating short-term 3- to 5-year LIBOR/SOFR-indexed loans.
"The widening of treasury spreads is not the cause, but rather the effect as seen from the perspective of one of the safest investments available.”