Risk Premium
The compensation an investor demands above the risk-free rate for accepting the risk of a particular asset. In real estate, the cap rate spread over Treasuries is one common proxy for the real-estate-specific risk premium -- compensating for illiquidity, property-level risk, vacancy risk, and capital-markets sensitivity. Risk premiums move with broader capital-market sentiment: low-rate environments with abundant capital tend to compress premiums; high-rate stressed environments tend to widen them. Cycle-aware investors track risk premiums alongside the underlying property fundamentals.
Related terms
Absorption Rate · AFFO per Share · Allowed Return on Equity · Alternative Investments · Anchor Tenant · Assets Under Management
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