Vacancy Allowance?

GV loss and downtime are two different things, or at least they are the way I look at it.

Downtime: How much time there will be between two different leases. Think of a construction period, and ARGUS takes it as a weighted average anyways so you're probably only getting ~2 months worth of downtime hitting your cash flow.

GV Loss: A rake off of your top line income with the assumption that some amount of space in the building cannot lease up. It's a good general buffer as well.

The general assumption being made here is starting with 100% of total possible rent for the property. Since most markets operate with a vacancy rate of some kind, this vacancy and collection loss factor is deducted from the top line potential income. This gives you the total income you could expect at your property based on stabilized operations within your local competing market. From there, rollover/downtime from normal operations of the asset must be deducted. These two deductions seem similar, but they are actually addressing and accounting for entirely different deductions. 

what do people in brokerage put into CIMs?

I'm increasingly doing vacancy allowance = 0% 

use only mla rollover

add vacancy allowance in terminal sale year only (stabilized market vacancy)

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I see this concept talked about often and I think the easiest way to approach the concept is this: whether you use a general vacancy loss assumption or Absorption & Turnover Vacancy (which captures your actual “physical vacancy”) depends on if you’re underwriting an acquisition or if you already own the asset.

If you’re underwriting an acquisition, then you would model vacancy using a general vacancy loss %.


If you already own the asset then you would 100% rely on the in-place leases to determine your physical vacancy between leases.

That said, when forecasting future years for an asset you own, you can also model your physical vacancy and then incorporate a general vacancy loss assumption as an extra buffer.