Industrial Acquisition – General vs Actual Vacancy

  • Anonymous
    # 1 year, 5 months ago

    I’m underwriting a 7 tenant acquisition for a warehouse, but am having trouble understanding how the General Vacancy section works. With large MF, I get that I could drop in 5% and that would give me a good idea as an overall picture of the performance. However, since I only have 7 tenants, I want to get more granular, as a general vacancy assumption will overly penalize the financial metrics, as there should be seasons where we are 100% occupied.

    What’s the best way to go about reflecting actual vacancy vs general vacancy in the model? Originally, I thought I should set the General Vacancy on ORI-OpSt to 0% then just use the ORI-RR tab to reflect downtime / concessions. However, if I do that, the ORI-OpSt and Property CF tabs make it look like I’m never vacant…so that can’t be the right answer.

    Do I go into the ORI-Calc tab an delete out the Renewal Income section to reflect actual vacancy?

    A little help would be awesome. Thanks!

    Spencer BurtonSpencer Burton
    # 1 year, 4 months ago

    Sorry for the delayed response here!

    This is a great observation. I would suggest still using some General Vacancy, as it’s a reflection of the credit loss risk at the property. Nevertheless, I understand the conundrum about hitting the deal too hard with a General Vacancy.

    With that said, the ORI module will apply downtime between leases. So if you have seven leases, when each lease expires there will be down months when occupancy will drop. This is determined by the 1st generation lease terms (ORI-RR – columsn I and J), future generation lease length (column BK) future generation renewal probability (column BJ), and future generation downtime (column BL).

    You can then go to row 56 of the ORI-OpSt tab and track the physical occupancy at the property.

    If you want more granularity and the above isn’t enough. You can manually restrict max occupancy using the ‘Available Space %’ row (row 55 on ORI-OpSt) tab. So you could manually max income out at say 95% during certain periods.

    Hope this was helpful!

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