Assuming a multifamily property has 200 units and is currently 60% occupied. Projected net absorbtion is 5 units per month. General Vacancy is projected to be 5%. Would you factor in general vacancy before the property stabilizes?
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The way I've seen it done is to apply the greater of the absorption vacancy or the stabilized vacancy. But you don't add the 5% on top of the vacancy during absorption. So if you're at 100/200 absorbed then it's 50%. If you're at 195/200 then it's 5%
Maybe you'd still want to apply a credit loss factor during the absorption period however...not sure.
Agreed - only thing I'd add is that once the asset is stabilized if your firm models annual turnover instead of just building in enough vacancy to account for it, the GVac should be in addition to the stabilized absorption/turnover.
Also if it's a value-add property and you're renovating the vacant units, general vacancy should be included during the renovation period since that vacancy isn't actively being leased up.
I think you should start with your 60% rate, so show 120 units and every month add 5 until you get to 190 (5% vacancy) and leave it at 5% in perpetuity.
You don’t factor in general vacancy until the asset is stabilized. So if stabilization is 5% vacancy. Your vacancy formula would be the greater of 5% or the current amount of occupied units divided by totally units. That way when it hits the 5% vacancy, that is why shows.
No.
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