I'm working at a small developer (value-add - buy office properties, convert to life science, sell) and we typically model our sales post-stabilization (>80% economic occupancy). We are exploring whether or not we should sell at ~65% occupancy to leave some "fat on the bone" for the next buyer.
Our intuition (which is not novel by any means), is that in hot markets the premium you'd get for a fully stabilized building does not fully reflect lease up risk. We will be working to quantify this.
So as to not re-invent the wheel - has anyone looked into this in-depth? at what level of occupancy do you model your exit? why?
Interested to hear your thoughts.
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