What is a Lease Up Schedule and Why is it Important in CRE Development?

Written by: Lucro Staff 2 months, 1 week ago

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Lease Up Schedule Defined

According to Financial Dictionary, a lease up schedule is defined as the time that it takes newly available properties to attract tenants and reach stabilized occupancy. Lease ups are generally associated with multifamily complexes that are in the midst of construction. 

There are usually several parties involved in created a lease up schedule, including the building’s owner, property manager, and construction team. This makes modeling properties with lease up schedules much more complex than modeling stabilized properties.  

Lease Ups vs Leasing at an Established Community

In order for lease up schedules to be effective guideposts for new developments, high levels of collaboration and communication are required on all levels. Everyone from the construction crew, the maintenance team, and the real estate developer have to stay in constant communication with one another on construction schedules, problems that may arise, and updates on current and prospective residents.

Unlike an established community of properties, where lease renewal periods are more or less known, lease up schedules are moving targets. Because of this margin for error, financial models with lease up schedules need to be monitored and updated as situations evolve. In comparison, in an established multifamily property, the rent roll is much more predictable.

Lease Up Schedule Challenges

Often times developers will begin to lease out units before the construction has concluded. One of the biggest challenges in this scenario is dealing with the concerns of current residents. Whether it’s the noise of construction, the debris, or dirt around the property, it can be a lot to stay on top of and manage effectively. There are often construction workers and residents on the property at the same time, which can lead to its own set of complaints and complications. Transparency and keeping communication streams open can help keep team members focused and customers happy, even when delays and unexpected situations arise.

Importance in CRE Forecasting

Lease up schedules assist real estate developers by providing a basis for forecasting when a property will generate income. Lease up schedules for multifamily properties generally last around 12-15 months from initial lease to stabilization. By the end of the lease up schedule, the property is determined to be “stabilized”, or operating at a regular vacancy level.

How soon a real estate developer is able to lease out their properties depends on several things, including marketing to prospective residents and communication between those involved in the development of the asset. It can be difficult to sell residents on brand new properties, especially when a development is still in the throes of constructions. But with collaboration and continual oversight, lease up schedules can be a powerful tool for forecasting future cash flows.