Investment News: Real Estate Valuations Likely to Cap REIT Returns
According to Investment News: For years, brokers have been selling high commission, nontraded real estate investment trusts with the promise of high dividend yields of 6% and 7% annually.
In late 2008 and early 2009, cap rates averaged 9% but have fallen since and currently average 5.1%, according to Cedrik Lachance, director of U.S. REIT research for Green Street Advisors.
“We are at basically all-time lows in cap rates in virtually every sector except for hotels,” Mr. Lachance said. “But in most core property sectors, sectors that attract nontraded REITS, we are at all-time lows. And record low cap rates mean the total returns that you can expect from real estate bought today are lower and sometimes materially lower than real estate bought in the past five to 10 years.”
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