What Will Next Year Bring for Cap Rates in Massachusetts?
Many commercial loans originated in 2017 offered a 4.5% rate that amortized over 25 years. As the Federal Reserve bank has increased interest rates, many commercial real estate owners are asking , what will next year bring for cap rates in Massachusetts?
Based on an assumed borrowing rate of 5.5% today for 25 year amortization, in order to achieve a 10% equity dividend rate, equivalent to a 4.5% borrowing rate, cap rates in the greater Boston area would have to increase by .53 points. Thus, a 7.0% cap rate would rise to 7.53% to maintain the same 10% cash on cash return.