Job question!
In completing a forecast proforma model for the hold/analysis period. What renewal probability would you use on the units?
[{"id": "fyq273r", "text": "Different for every asset class. Need more info", "replies": [{"id": "fyq2fcz", "text": "multi-residential", "replies": [{"id": "fyq2jhv", "text": "Which country is this property located? Typically the general vacancy provision is slightly based off your CPI of where you live. I\u2019m in Canada and the general provision is typically 5%... maybe 2.5-3% in certain provinces. Multi-res is tricky.", "replies": [{"id": "fyq2xdw", "text": "canada. The options are: 20%, 80%, 90%, 100%", "replies": [{"id": "fyq3s2r", "text": "Those are weird options. I agree with tonybologna, one usually uses a blanket vacancy assumption for multifamily. I suppose renewal probabilities make sense for a small number of units. If this is for some kind of test, the answer must be either 80 or 90, but", "replies": [{"id": "fyq6kmy", "text": "what reasoning would I use?", "replies": [], "depth": 6}], "depth": 5}, {"id": "fyqansi", "text": "If market is 80% renewal (20% turnover), why do you expect your property to perform better or worse? I\u2019d be interested to know why there is zero turnover next year (24 month resi leases?) but my answer would be market unless I had a compelling reason otherwise. An example of a compelling reason would be lower than market rents at the subject property which I would then expect lower turnover if I\u2019m not pushing rents up to that market level. \n\nI\u2019ll caveat that my underwriting experience is exclusively in the US and as other stated, typical turnover percentage as a general rule of thumb is 50%. In reality, it\u2019s hard to get the data required for a market turnover percentage but since you have it given to you, I\u2019d lean toward that.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "fyq38ek", "text": "Variations based on property type, tenant specifics, and market conditions. Has the tenant been through a few renewals already? What business are they in, and is it doing well? Are they likely to outgrow the space? Are you investing in TIs to sweeten a renewal? \n\nIf I have to completely shoot in the dark I\u2019d go a little conservative at 50% and a good TI allowance. If there\u2019s a reason to think they will stay, call it 75%.", "replies": [{"id": "fyq653r", "text": "Second this, I typically use 75% (stabilized value-add) with some decent TI. I'm sure you could get more in the weeds with tenant interviews and in-depth research on the tenant's industry outlook as was said above.\n\nAll that being said I'm in Office so anything I've said may be completely irrelevant to resi lol", "replies": [{"id": "fyq7upz", "text": "The turnover for the next year is zero, market turnover is 20% and there will be a five year hold", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "fyqehgl", "text": "I\u2019ve found this really depends on how aggressively you raise rents and condition of property. Be conservative to start and once you decide how you\u2019re going to play the game, you home in better on this number. As an example, in 1031 exchanged my 1980s junk rentals from California to Florida where I built houses to rent. Better rents at higher rates with better tenants. But, so far the turnover is higher but the cost to turnover is lower. For the remaining houses in CA, I like to stay under market rent but also did good job on repairs. My average stay is 6 years thus far. I want them there as long as possible and don\u2019t want to give them reasons to leave.", "replies": [], "depth": 1}]