For the last decade, "Cap Rate Compression" was the lazy investor's best friend. You could buy a building at a 6% cap, wait three years, and sell it at a 4% cap purely because interest rates dropped.
That party is over.
With the 10-Year Treasury hovering between 4.2% and 4.5%, the "risk-free" rate is now a serious competitor to real estate. If you can get 4.5% from Uncle Sam without fixing a toilet, why would you buy a warehouse at a 5.5% cap?
The Data (2024-2025)
The "Spread" is tight (~150-190 bps). Historically, investors want a 250+ bps spread to justify the risk of illiquidity.
The Spearhead Thesis
We don't buy based on "Exit Cap" compression. We assume cap rates will expand (get worse) or stay flat.
To make money in this environment, you cannot rely on financial engineering. You must rely on NOI Growth.
- Mark-to-Market Rents. Buying assets where current rents are 20-30% below market allows us to force NOI up, outpacing any cap rate expansion.
- The "Cash-on-Cash" Rule. If the deal doesn't cash flow Day 1 with positive leverage (Cap Rate > Debt Constant), we don't touch it. We don't buy negative leverage.
The days of the "passive allocator" are done. 2025 is the year of the Operator.
