A.CRE

Metropolitan Statistical Area

A Metropolitan Statistical Area, or MSA, is an area that usually includes a major city at its core and the surrounding towns and suburbs. It is not a legal area that is governed by any one entity, but an area to which numerous towns and a city, or cities have lots of inter-connectivity.

Putting ‘Metropolitan Statistical Area’ in Context

Example Scenario

Evergreen Pension Investments, a pension fund focused on stable, long-term investments, is evaluating the acquisition of Willow Creek Business Park, a 250,000-square-foot suburban office complex located in the Raleigh-Cary, NC Metropolitan Statistical Area (MSA).

The Raleigh-Cary MSA encompasses Raleigh, Cary, and several surrounding communities, forming a region that is highly interconnected through economic activity, commuting patterns, and infrastructure. Known as part of North Carolina’s Research Triangle, this MSA is characterized by strong job growth in technology, education, and healthcare sectors, making it a prime location for real estate investment.

Why the MSA Matters

Willow Creek Business Park benefits directly from its location in the Raleigh-Cary MSA. The area has experienced a population growth of 2.3% annually over the past five years, well above the national average. This population growth fuels demand for office space as businesses relocate to the region to tap into a highly educated workforce and favorable business environment. The MSA’s boundaries, as defined by the U.S. Office of Management and Budget (OMB), help Evergreen Pension Investments understand the economic and demographic trends affecting the property and its potential for stable, long-term cash flows.

Example MSA Insights in Action

When evaluating the acquisition, Evergreen Pension Investments analyzes the following aspects of the Raleigh-Cary MSA:

  • Population Growth: The MSA’s population is projected to grow another 10% over the next decade, ensuring a growing demand for commercial real estate.
  • Employment Trends: The area’s unemployment rate of 3.2% is below the national average, and major employers like Cisco Systems and Duke University Hospital bolster economic stability.
  • Connectivity: The region’s transportation infrastructure, including Raleigh-Durham International Airport and major highways, enhances its appeal to businesses and employees alike.

Financial Analysis Example

Willow Creek Business Park generates an annual Net Operating Income (NOI) of $5 million and is listed for $70 million. Evergreen Pension Investments applies a capitalization rate of 7.0% for this property, reflecting the stability of the MSA. Using the formula for cap rate:

Cap Rate = NOI ÷ Purchase Price

7.0% = $5,000,000 ÷ $70,000,000

This calculation confirms the property’s valuation aligns with market norms for core investments in a strong MSA like Raleigh-Cary.

Conclusion

By understanding the characteristics of the Raleigh-Cary MSA, Evergreen Pension Investments gains confidence in Willow Creek Business Park’s potential to deliver steady returns. The interconnected economic activity within the MSA, combined with favorable demographic and employment trends, reinforces the property’s appeal as a core investment.

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