Researcher ORCID Identifier
0009-0007-7970-0104
Graduation Year
2023
Date of Submission
12-2023
Document Type
Open Access Senior Thesis
Degree Name
Bachelor of Arts
Department
Economics
Reader 1
Nishant Dass
Terms of Use & License Information
Rights Information
© 2023 Zachary G Torrey
Abstract
Capitalization Rates are a dynamic measurement utilized in real estate to assess investment opportunities. The cap rate is the best apples-to-apples comparison metric available to investors to compare and prioritize investments. As such, there is a large emphasis in the real estate field on understanding the best predictive indicators of cap rate variation across geographies. In this analysis, I focus on multifamily cap rates and examine what are the best predictive indicators that explain the level of the cap rate across geographies over time. In doing so, I identify three novel variables that influence the cap rate as well as contribute to the robustness claims over the existing documented relationships of macroeconomic and microeconomic variables influence on the cap rate. I find using panel data from 2010 to 2022 that the novel variables of the top 10 percentile of population-adjusted crime, top 25 percentile of population-adjusted evictions, and the supply trend all have statistically significant relationships with the level of the cap rate and determine the 10-year interest rate and the risk-free rate as the largest positive influences on the cap rate. I identify the population and median household income as holding the strongest negative relationship with the cap rate. I derived these findings through a novel testing methodology tailored to this research—more precisely, a fixed-effects Generalized Least Squares (GLS) model with robust standard errors.
Recommended Citation
Torrey, Zachary, "Geographic Dynamics of Multifamily Capitalization Rates: A Comprehensive Study of Variation and Determinants" (2023). CMC Senior Theses. 3407.
https://scholarship.claremont.edu/cmc_theses/3407
