Lease Economics
What a lease is really worth after concessions, how far in-place rents sit below market, where the comps say rent should be, and when a renewal beats a new lease.
Every figure here is invented.
The 4 parts: Effective rent · Loss to lease · The comp survey · Renewal or a new lease
Effective Rent Under a Concession
A concession is spread over the whole term. The same free weeks are worth a different discount on a different term.
The Result
The Figures
| Term, Months | Net Effective Rent | Discount to Face |
|---|
Loss to Lease and Its Burn-Off
The gap between market rent and the rents in place, by unit type, and how much of it the next 12 months of expirations close.
| Unit Type | Units | In-Place Rent | Market Rent |
|---|
The Result
By Unit Type
| Unit Type | Gap a Unit | Gap | A Year | Renewal Rent |
|---|
The Figures
| Month | Market GPR | In-Place GPR | Loss to Lease | Share |
|---|
The Comp Survey
Each comp is taken to its effective rent, then moved to the subject: a comp with something the subject lacks comes down, one without something the subject has goes up.
The Indication
The Adjustment Grid
Renewal Against a New Lease
A renewal at a small increase against the rent, vacancy, concession and costs of turning the unit, weighted by the retention you expect at each offer.
| Offer | Increase | Retention You Expect |
|---|
The Turn
The Offers
| Offer | Renewal Rent | Renewal Revenue | Expected Revenue | Against the Best | Retention to Tie the Best |
|---|
The link in the address bar carries this run.
How It Works
Weeks become months at weeks × 7 ÷ 30.4375, 30.4375 being the days in an average month (365.25 ÷ 12). Every part uses the same rule, as do the other 3 tools.
Effective Rent
The concession is valued in dollars: face × months free for free weeks or months, the dollars for a credit given once, and % off × face × months for a discount on some months. Then net effective rent = (face × term − concession) ÷ term and discount = 1 − effective ÷ face. Waived fees and a locator fee come off the same total. The face rent that nets today's face is face × term ÷ (term − months free).
Loss to Lease
loss to lease = Σ units × (market − in-place), shown a month, a year and as a share of market GPR. For the burn-off, 1/12 of each type expires each month; the share you keep renews at min(in-place × (1 + cap), market) and the rest re-lease at market. A negative gap is gain to lease.
The Comp Survey
Each comp's effective rent is asking × (term − free weeks × 7 ÷ 30.4375) ÷ term. Adjustments move the comp to the subject: size = (subject SF − comp SF) × rate, age = (subject year − comp year) × rate, each feature (subject has − comp has) × value, plus location. The gross adjustment is the sum of their absolute values over the effective rent; above the flag, lean on that comp less. The indicated rent is the weighted mean of the adjusted rents.
Renewal or a New Lease
renewal revenue = current × (1 + increase) × horizon. turn revenue = (horizon − vacant days ÷ 30.4375) × market − concession weeks × 7 ÷ 30.4375 × market − make-ready − leasing. expected = retention × renewal + (1 − retention) × turn. Any renewal above turn ÷ horizon a month beats a turn; the best offer is the one with the highest expected revenue, and a bigger increase only wins if it costs little retention.
The common mistake is comparing concessions without the term. 6 weeks free is an 11.50% discount on a 12-month lease and 9.20% on a 15-month lease.
Downloads
The workbook has a sheet per part. Inputs are the shaded cells; every other figure is a live formula, with the page's figure beside it as a check.
Rent comp survey template, Excel
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The other tools · The Underwriting Model · Debt Sizing and Refinance · The Renovation Planner · All of them