California Cap Rate Premium
In his June 20, 2026 reply to Mark, Mike explained that California assets typically price at cap rates ~50–75 bps lower than comparable out-of-state assets — even when the out-of-state locations have stronger growth fundamentals. He supported this with four CA comparable OMs (Brentwood, Merced, Delano, Vacaville) and three arguments. The implication: non-CA markets deliver more current income yield and faster population growth for the same capital.
Mike's Three Arguments¶
- Population growth gap: CA's fastest-growing counties grow 0.8–1.8%/yr vs. 5.7–6.0% in top TX/AZ counties.
- Regulatory/replacement cost: CA permitting and fees raise costs; buyers may pay a new-build price for older vintage.
- Disposable income: high Bay Area incomes are eroded by $1.8–2.0M home values, leaving less retail spending power.
CA Comparables (cap rates)¶
- Brentwood, Lone Tree Way — 5.25% · Chipotle Delano — 5.10% · Shops at Nut Tree — 5.75% · Aspen Dental Merced — TBD.