Vacancy and Concessions Estimates

[Patrick Sharr]

Hi,

I'm trying to get my repetitions up underwriting mock apartment scenarios.  Looking for knowledge from the groups' experience.  When thinking about vacancy, concessions, loss to lease, bad debt:

1) When initially underwriting deals before going through due diligence, what percentage of gross potential rent do you factor in for concessions, loss to lease, bad debt to be conservative?

2) Have you seen a relationship between vacancy rate and concessions, loss to lease, bad debt or are they not highly correlated? If vacancy goes down from year 1 to year 2, does bad debt and concessions usually go up?  I guess it would depend on the local market and property for this one.  If it's a good market and vacancies are reduced, you might not have to give that many concessions or write off as much bad debt.

[Patrick Sharr]

@Ryan Daigle Thanks, that's what I was thinking is sometimes if you want the maximum market rent, your vacancy rate may be sitting higher for longer and vice versa.  Then it just comes down to doing the cost benefit analysis of lost revenue with the higher vacancy for a longer period compared to having tenants in there at a lower rate.  That's good knowledge about the bad debt and vacancy.