What is the market cap rate for C class properties in Atlanta MSA

[Adi A.]

Hi,

I'm evaluating a mid-size (40 - 70 unit) MFH property in the Greater Atlanta area. Would like to know the current market cap rate for such Class C properties?

Please let me know.

-A

[Joel Owens]

I have lived in GA all of my life. Be really careful with people trying to sell you stuff and calling it C properties.

A lot of that stuff I would consider D to F properties. There are still some good C properties out there but more in the strong suburban areas. Look up the crime report around the complex you are looking at. That should be really telling about what goes around in the area.

As far as the cap rate I think it is important in one respect. On value add deals where you are stabilizing with some occupancy it is important to know the (going in cap rate).  You at least want to be making some money going in. The reason is if it does not turn around like you think you want cash flow from day one. If you are not getting that going in then the property better be severely discounted for the extra risk being taken on.   

On retail properties some of my clients want value add for turn around. The property needs to be a 7 or 8 cap going in with some upside for lease up and maybe out parcels for development to push yield. A seller selling instead here is a 5 cap and when leased up a 7 cap doesn't fly unless the area is just A++ incredible and very strong rent growth is occurring.

It's all situational really and up to each investor on what they will accept.

If you are syndicating value add then generally you have hurdles for investors such a 4% pref year 1, 6% year 2, 8% year 3 but their equity growth is the bonus for value. I know some syndicators who become glorified property managers buying existing centers at a 7 cap. No money in that kind of property. When you could buy existing 4 years ago for MF and Retail and have it close to full you could have cap rate compression occur with the market cycle and rent growth. Today you need to buy value add or ground up development to get the cap rate you want in many markets.