Effective rent is what a lease actually pays over its term once concessions are spread across it: free months, moving allowances, reduced deposits. It is the number that underwrites, because it is the one the building will collect, as opposed to the asking rent, which is what was advertised.
- Concessions are cheaper for a landlord than a lower asking rent, because they protect the number the next lease and the next appraisal are measured against.
- Ask what the last three leases actually signed at, including what was given away. That is the market, not the sign.
- A market can look flat and be falling. Concessions are the first thing to move and the last thing to be published.
- Underwrite effective, present asking. Confusing the two is how a proforma overstates income without anyone lying.
A unit asking $1,800 with one month free on a twelve-month lease.
The sign says $1,800 and the bank sees $1,650. Both are true, and only one of them belongs in an underwriting.
Related terms
All termsLoss to Lease
Loss to lease is the gap between what units would rent for at market today and what the current leases actually charge.
InvestmentEconomic Vacancy
Economic vacancy is the share of potential rent a building never collects, for any reason: empty units, unpaid rent, concessions, employee or owner units, and the downtime between tenants.
MarketsAbsorption
Absorption is the rate at which available space is taken up over a period: units leased, net of units given back.
Terms arrive with the writing.
The glossary grows as the Journal does, one email when something worth reading goes up. No noise.
Unsubscribe anytime. See our Privacy Policy.