Cap rate expansion is when cap rates rise, reducing property values for the same NOI. Pre-1978 LA City multifamily is expanding through 2026 due to the July RSO rewrite.
The reverse of compression: cap rates go up, prices come down for the same NOI. Expansion happens when interest rates rise, buyer pools thin, or rent growth expectations decline.
For sellers, expansion is the less-good direction. A building worth $6 million at a 5% cap is worth $5.4 million at a 5.5% cap — a 10% price reduction from a 50 basis point expansion.
Most LA multifamily submarkets saw 40-80 basis points of expansion through 2023-2024 as interest rates climbed. Pre-1978 LA City inventory continues to expand in 2026 as buyers absorb the July RSO rewrite (new 4% rent growth ceiling). Post-1995 Costa-Hawkins exempt inventory is stable or slightly compressing.
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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