The rent line understates the operating change
Asking rents can remain flat while effective income improves. For an owner underwriting a concession-heavy lease roll, the size and duration of the concession can matter more than the advertised rent change. The Nashville setting here is illustrative. Every value below is a hypothetical input, not a reported market observation.
Model assumptions
- 200 units; 95% economic occupancy, represented by 190 occupied units for this simplified model.
- $1,450 monthly asking rent in both cases.
- A one-month concession in the base case and a half-month concession in the alternative case.
- Every occupied unit receives the same annual concession; other income, bad debt and collection timing are excluded.
- Annual operating expenses remain $1,450,000 in both cases.
A $725 change per occupied unit
| Metric | One month free | Half month free | Change |
|---|---|---|---|
| Monthly asking rent | $1,450 | $1,450 | 0.0% |
| Annual effective rent / occupied unit | $15,950 | $16,675 | +$725 / +4.5% |
| Occupied units | 190 | 190 | Unchanged |
| Annual rental income | $3,030,500 | $3,168,250 | +$137,750 |
| Operating expenses | $1,450,000 | $1,450,000 | Unchanged |
| Modeled NOI | $1,580,500 | $1,718,250 | +8.7% |
Annual effective rent equals monthly asking rent multiplied by paid months. The base case uses 11 paid months; the alternative uses 11.5. The revenue improvement flows through to NOI only because occupancy and expenses are held constant.
Underwriting the timing
The model does not mean a concession change produces the full annual increase immediately. In practice, lease expirations, renewal offers, retention and competitive lease-ups determine the pace. A property with concessions limited to new leases will produce a different result from this uniform lease-roll assumption.
A flat asking-rent assumption does not imply flat effective revenue. The lease roll determines when concession burn-off reaches cash flow.
Apartmentality analysis — illustrative model
The operating view
For a Nashville acquisition or refinancing, isolate new-lease concessions from renewal economics and compare the property with its immediate competitive set. A concession schedule can improve while another expense line offsets the revenue gain. The point of view: underwrite effective income and timing explicitly; asking-rent growth alone is an incomplete proxy for the NOI trajectory.