So what is a "CAP" rate?

Many investors see "Cap rate"associated with commercial real estate offering, but, don't truly understand what it is telling them. A cap rate is an estimate for the time it takes to recapture their purchase price based on the Net Operating Income. (NOI) is the annual income less expenses resulting in net spendable income before debt service. It gives the investor an insight to the income performance of the investment with just a glance without having to analyze many offerings.

To compute a cap rate for a given property, take the sale price and divide it by the NOI. For example; if the sale price is $100,000 and the NOI is $10,000, the $100,000 divided by the $10,000 is .10 or 10% cap rate.

If you have a cap rate that you are seeking in an investment and you want to know what price you have to pay to achieve that cap rate, start with the NOI of the property, divide by your cap rate and voila, that's what you can pay for the property. If you know the NOI is $10,000 and you want a cap rate of 9%, you take the $10,000 and divide by .09 to get the purchase price of $111,111.11.

A lower cap rate returns that amount slower and makes it less interesting to the investor and at a higher price. That is to suggest there is an inverse relationship between cap rate and price of a property. The higher the cap rate, the lower the price. The lower the cap rate, the higher the price.
Cap rates are used by appraisers and financial institutions and are typically based on sold comparables and their incomes. Other factors such as: type of property, geography, age, condition and stability may be considered.

Have one of our friendly professionals analyze properties of interest for the whole picture so as to help you make an informed business decision.

Warmest Regards, 
Bruce Bossow


Modified Gross
800 S Route 31     Crystal Lake
Night Club / Restaurant or Sports Bar Space
4,000 SF Space located inside the Holiday Inn Crystal Lake Convention Center.  Space features DJ booth, elevator, two floors (both with bars) open from above and below. Outside private patio  and modern hotel   amenities.  Possible use of hotel kitchen as a food source for patrons. Restaurant  Sports Bar by day, Nightclub by Night!



354 NW Hwy, Cary
Operating  Coin Laundry
Cary - well established laundromat on Rt. 14 in Cary Corners Shopping Center. Current owner is retiring after profitable 12 year run. New 10 year assignable lease with 5 year option. Open 24/7 with trained staff or run it yourself.
                 FOR SALE


980 E. Oak 2 & 3, Lake in the Hills
Bank Owned Office Condo
Lake in the Hills - one of two bank owned office condos with private entrances. 1,250 SF end unit with lots of natural light, set up as 2 contiguous 625 SF units. Work out of one and rent out the other. $89,900! A STEAL!
               FOR LEASE

$7.50 psf Gross

212 Lindow Lane, Marengo
Commercial/Warehouse Space
Marengo - 5,000 SF fully air conditioned space in attractive pre-cast building. 18' ft ceilings and 12 X 14 DID. Rare find at $7.50 psf gross.
                FOR SALE


251-259 Jandus Road Cary
Nice Investment
Cary - Fully leased 2 tenant 11,420 SF industrial building. Good tenants. 8.23% cap rate. Broker has interest.
                FOR SALE


110 N State Street  Marengo
Mixed use Investment
Marengo - 3,739 SF 4-unit mixed use fully leased investment with 2 apartments and 2 retail spaces. 10.36% cap rate.

Sale Price: $199,000 Lease Price: $9.71 psf Modified Gross ($1800/mo)

214 N. Main Street Algonquin
Freestanding office on Rt. 31
Algonquin - 2,224 SF 2 story office or retail building. New windows and roof in 2016. Private parking lot.

3300 Three Oaks Rd 
Unit A
12,000 SF
Bruce Kaplan and Kevin Kaplan

Kenilworth Ave
Villa Park
Joe Billitteri

755 McArdle Units A/B
Crystal Lake
Office Condo
2,000 SF
Bruce Kaplan, Kevin Kaplan and Chris Yuan

7451 Spring Grove Road
Spring Grove
10,000 SF
Bruce Kaplan and Kevin Kaplan

850 S. McHenry Ave. Suite B
Crystal Lake
Office Condo
2,035 SF
Bruce Kaplan and Kevin Kaplan

2742-2754 Barney Court
Industrial Space
14,357 SF
Bruce Kaplan and Kevin Kaplan
SUPPLY VERSUS DEMAND...we seem to always struggle with an imbalance of one or the other. For years we had way more supply of industrial spaces and buildings than demand. In the last few years, it's just the opposite. When this happens, we usually see rents and selling prices increase. Market statistics show that is happening much to the pleasure of landlords and building owners. Tenants and buyers are paying more than they have in a long time.
The rapid growth of e-commerce is one of the main drivers of industrial space demand. More and more people are finding it convenient to click a mouse and get some product delivered to their doorstep the next day. E-commerce deliveries tripled between 2013 and 2018, prompting companies to seek more urban infill warehouse locations so they can provide faster deliveries to consumers.
According  to a May 30, 2019 article by Saurabh Mahajen writing for Deloitte Insights, a side effect of all this e-commerce driving warehouse space needs is the fact that customers are three times more likely to return products they bought on-line vs those they bought at a store. All those returns require even more warehouse space. With e-commerce sales expected to grow at a rate of 15% per year thru 2023, demand for an additional 850 million sq ft of industrial real estate is projected in the US.
Trying to put a local perspective on this demand uptick, there was around 3 million sq feet of net absorbtion in McHenry and Northern Kane Counties in 2018. Empty space was gobbled up which drove vacancy rates down to 4% and below (per Jones Lang LaSalle Research). This means to me as a broker that finding suitable space or a building for a client is much harder than it was a few years ago. What this means to landlords and sellers is they can charge more for their product because tenants and buyers will pay more.
All this means that if you have an industrial building to sell, this may be your best time to put it on the market. Even if it's not a warehouse suitable for e-commerce, there is likely someone out there who wants to buy or lease it. Business cycles being what they are, this condition won't last forever.
Bruce S. Kaplan is a Senior Broker Associate with Premier Commercial Realty in Lake in the Hills and can be reached by email at [email protected].

Many of our clients have planned for retirement by investing in traditional IRA's. 401K's or SEP IRAs.Most of these vehicles are composed of mutual funds, stocks or bonds that are recommended by your custodian (stock broker or financial advisor). Some of our clients have expressed dissatisfaction with the rate of growth of their retirement accounts or for different reasons wished they could diversify into other wealth building vehicles.
You may be surprised to know that you can diversify your retirement accounts and buy real estate or even a business using a perfectly legal tool called a Self Directed IRA. Self directed signifies that you, and not some third party stock broker, choose your IRA investments. Most investors are unaware of this opportunity because their IRA custodians do not offer anything other than traditional investments. Most of these custodians do not want you to know you have an option to buy real estate or businesses for your IRA and enjoy all the benefits those asset types have to offer.
Now I know that some of you are going to say that real estate has not been such a great investment over the years during certain periods. Like the stock market, the real estate market took a hit for a few years starting in about 2008 (as did the whole economy!) However, right now, there are some extraordinary opportunities in  commercial real estate because interest rates are so low. There is also a big price discrepancy between existing buildings and the cost to build new,  rendering many existing buildings good investments at decent cap rates (8,9,10%).  These can become part of your retirement portfolio using a self-directed program.
If you are so inclined, you can look up Section 408 of the Internal Revenue Code, which permits individuals to purchase land, commercial property, condos, residential property (you can't personally live in it) and a few other things with funds currently held in many common forms of IRA, including traditional IRAs, ROTH IRA's and SEP IRAs. You cannot, however, use IRA funds for your personal residence or vacation home.
We have seen clients who are not happy with their traditional IRAs or 401Ks find a specialized custodian and rollover their accounts to allow for direct purchases of commercial real estate such as income producing office, retail and industrial properties. One such client bought a foreclosed multi-tenant office building in Cary. The income and appreciation accumulate tax deferred until it is taken out. If the real estate is held in a ROTH IRA, all proceeds are tax free when taken out at retirement.
If you don't have enough cash in your self directed IRA to buy an entire property by yourself, you can co-invest with friends and relatives as tenants in common. The property deed would specify what percentage of ownership your IRA held in the property. In addition, if the group doesn't have enough cash to buy the property outright, your group, usually operating under an LLC, can obtain a loan. You are not permitted to personally guarantee that loan, however. It must be what they call a non recourse loan. Or that loan can be personally guaranteed by one of the others in the group who is not buying it as a part of his retirement plan.
Depending on the self directed IRA plan you choose, there is an initial out of pocket fee of $495, and the total set up fees range from $1200-1700. You can set up a checking account at a local bank of your choice and have complete control over that account.
More and more people are taking advantage of this self directed retirement plan. You owe it to yourself to take a closer look.
Note: For more information on Self Directed IRA's, pick up a copy of "The Ultimate Self-Directed IRA" by Jeff Astor. You can order it on Amazon.
Bruce Kaplan is a Senior Broker Associate with Premier Commercial Realty in Lake in the Hills. Reach him at [email protected].

Premier Commercial Realty
 9225 S. IL Route 31 | Lake in the Hills, IL 60156

Bruce Bossow, x 12 847-732-3462
Bruce Kaplan, x 20  847-507-1759
Heather Schweitzer, x 15  815-236-9816
Heide Casciaro, x 26 847-774-5660
Joe Billitteri, x 21  847-833-5004
Kevin Kaplan, x 13  309-261-0920
Chris Yuan, x 24 312-927-6333