Interest Rates, Cap Rates Don’t Move in Lockstep
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TIAA-CREF sees “a slight protective buffer” in the spread between cap rates and Treasury yields.
NEW YORK CITY—The monthly meeting of the Federal Open Market Committee that gets underway on Tuesday is expected to begin the long-awaited, long-delayed process of normalizing interest rates. With the prospect of near-term action by the Federal Reserve, “real estate investors are worried,” as a new report from TIAA-CREF Asset Management puts it. A specific concern is the effect of rising interest rates on cap rates and valuations.
“Investors’ fears tend to focus on the arithmetic showing that rising interest rates result in increasing cap rates and, all else equal, declining property values,” according to the TIAA-CREF report. “The problem is that the relationship between interest rates and cap rates is more complex and typically, all else is not equal.”…
