In the latest edition of Living Akamai with Kay Mukaigawa of Engel & Volkers, Kay invited senior vice president of Cushman & Wakefield ChaneyBrooks, Anthony Provenzano to discuss commercial real estate and what exactly that means.

“Commercial real estate refers to properties that are used for business or investment purposes such as office buildings, retail spaces, warehouses, large parcels of land, Hotels and apartment buildings comprising of 5 units or more.  Cap rate is short for capitalization rate and it’s the ratio of net operating income divided by the sales price. It is essentially the yield an investor is willing to pay for a property. For example, industrial and multifamily cap rates are in the 4.5 – 5.5% range and office which is closer to 6.5- 7.5% since it’s a little riskier of an asset class.”

Kay asked for an update on the commercial real estate market in Hawaii.

“Living on an island, we don’t overbuild so our inventory is actually one of the lowest in the entire nation in almost every single asset class. Unfortunately, this also keeps our prices high since there are very little properties for investors or businesses to purchase.  Also, banks are tightening and it is becoming harder to borrow money. The local banks will be doing deals with the clients they have relationships with, and the properties themselves will have to be able to support the loan. With the increase in interest rates to about 6.5% to 7% now, on a 10-year fixed rate for a commercial loan, the borrower might have to put an additional down payment to make it work. Typical down payments for commercial properties are in the 25 – 50% range. Buyers and sellers are still doing a lot of 1031 exchanges. We are also seeing a large number of all-cash buyers. Asking prices have been difficult with sellers still expecting higher prices and buyers looking for discounts. Sellers and buyers are going to continue to be creative and patient on deals to make them work. There will be a continuation of buyers looking for strong core assets in the multifamily, industrial and hospitality sectors.”

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