Cap rate spread is the difference between a property's cap rate and a benchmark (Treasury rates, commercial mortgage rates, etc.). Measures relative value and risk premium.
A cap rate of 5% on a 10-year Treasury yield of 4% produces a 100 basis point spread — the investor's compensation for illiquidity and property-specific risk. Wider spreads indicate more risk premium; narrower spreads indicate aggressive pricing relative to risk-free alternatives.
LA multifamily cap rate spreads in 2026: Westside premium at 3.5% vs. 10-year Treasury 4% produces a negative spread (-50 bps), which indicates investor conviction in long-term appreciation beyond current cash flow. Valley submarkets at 5.5-6% produce 150-200 bps positive spreads — more conventional risk premium.
From the Sterman LA Multifamily Glossary — defined the way a broker with $1.41 billion across 254 closed transactions actually uses these terms.
Michael Sterman, Senior Managing Director Investments, Marcus & Millichap.
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