Retail

By Taylor Williams Retail owners are facing critical questions about whether to sell or hold their properties in the current environment, which is still defined by uncertainty about whether interest rate hikes have truly peaked and investment sales prices have actually bottomed out. Investment sales decisions frequently hinge on analysis of cap rates, defined as a property’s net operating income divided by its sales price. Generally speaking, higher cap rates indicate lower sales prices and are therefore sought by buyers, whereas lower cap rates reflect higher prices and are preferred by sellers. Cap rates are fluid and tend to move linearly with interest rates. Thus, the Federal Reserve’s campaign of 11 interest rate hikes totaling 500 basis points over the last 20 months has caused cap rates in all asset classes to rise, or as industry folks say, to decompress. The extent to which this cap rate movement influences an investor’s sell-or-hold dilemma varies from deal to deal, but the common denominator is that it complicates all such decisions. At the inaugural InterFace Houston Retail conference, a panel of capital markets professionals delved into the numerical analysis and anecdotal evidence that investment sales brokers are relying on to guide clients …