Dervech Real Estate, Inc.

Cap Rate, also known as a Capitalization Rate, is a metric used to measure the rate of return to derive the capital value of an income stream or net operating income. The net operating income from an investment property is divided by the cap rate which will determine the property’s market value. Many factors are considered when determining a property’s cap rate, some of which include: age of property, property classification, property characteristics, geographically location, credit worthiness and diversity of tenants, length of tenant leases in place, broader supply and demand of real estate market fundamentals for the asset class, underlying economic fundamentals for the region including population growth, employment, growth, and inventory of comparable space on the market.

Traditional speaking, the timeframe for a Retail Investment property transaction is approx. 60 to 90 days. Once the contract is fully executed, known as the execution date, the Inspection Period will commence. During this period of time, the prospective purchaser and their team will perform their Due Diligence of the property to include survey, title review, geotechnical, environmental studies, building inspections, zoning review and financial analysis. This process can be very routine or complex depending upon the asset. Once the Inspection Period ends, the buyer enters into the Closing Period to finalize all documentation to transfer property. The 60-90 day period seems like a long time but this can come fast and you want to be able to complete a full Due Diligence of the asset. It is extremely beneficial to have the right professionals on your team that specialize in each facet of the acquisition process from brokers, attorneys, title companies, engineers, contractors and surveyors.