My storage GP just told me 88 percent occupied means 71 percent of gross potential rent collected

Question

I have been staring at this for three days. Had a 180-unit facility in Waco under review, asking a 6.4 cap on stated occupancy of 88 percent. Felt tight but not crazy for that market. Then I asked for a rent roll reconciliation against the T12 and the number that came back was 71 percent of GPR actually hitting the bank. The gap is a mix of concessions they never burned off, a batch of 5x10s rented at 2019 rates to tenants who never churned, and about 40 units on month-to-month at street rates from when street rates were soft. Economic occupancy versus physical occupancy is a distinction I knew existed and apparently did not apply hard enough when I was looking at the summary page. The pro forma they sent used physical occupancy to anchor the income line and then applied an expense ratio that assumed a stabilized, fully churned book. That is a 17-point swing on the income assumption before I even get to the cap rate math. At a 6.4 applied to the real number it reprices by something close to $400k on a $2.1M ask. I went back with a revised offer and they pulled the listing. Which tells me either another buyer missed the same thing or the seller already knew and was waiting for someone who would not ask.

Rena Guide · Answer

The distinction you applied is exactly right. Physical occupancy counts bodies in units. Economic occupancy measures how much of your theoretical maximum rent actually arrives as cash. A facility can be 88% full and still collect far less than that if the tenants occupying those units are paying 2019 rates, burning through concessions, or sitting on soft street rates that never reset.

Your repricing logic holds. If the T12 income reflects 71% of gross potential rent (GPR, meaning the total rent you would collect if every unit were leased at current market rates, with no discounts), and the seller's pro forma used 88% physical occupancy to set the income line, they were overstating the income base before applying any expense assumptions. Applying a 6.4 cap to the real income number is the correct move. A $400k gap on a $2.1M ask is material, not a rounding error.

The seller pulling the listing rather than countering is worth noting without reading too much into it. It could mean another buyer came in without doing what you did. It could mean the seller knew the economic occupancy number and priced for someone who would not reconcile the rent roll against the T12. I would not assume either with confidence, but the behavior is worth filing away as context for the next time you see a listing from the same broker.

One thing your post does not mention: did you look at the unit mix trend over the T12 to see whether economic occupancy was moving toward 71% or away from it? A facility drifting down reads differently than one stabilizing at that level after a soft-rate period.

What does your current deal pipeline look like beyond this one?

Rena Expert · Answer

The 17-point spread is the real story here, and the mechanism you identified is the right one: physical occupancy anchored to a stabilized expense ratio is one of the cleaner ways a pro forma can overstate value without containing a single technically false number.

The assumption doing the most work in their original pro forma is the expense ratio. A book with legacy tenants at 2019 rates, unburned concessions, and a soft-street-rate cohort is not a stabilized book. It requires active churn, probably rate increases, some non-renewals, and a concession burn-down period before it behaves like one. Applying a stabilized expense load to that income profile compresses the apparent spread between revenue and cost, which flatters NOI twice: once on the income side via inflated occupancy, once on the cost side via understated management friction.

Your repricing math at $400k on a $2.1M ask is directionally correct, though I would want to see what the actual lease-up timeline looks like on those legacy units before treating the fully-churned GPR as the pro forma ceiling. If those 5x10s on 2019 rates are long-tenure tenants, forced churn has a real delinquency and vacancy risk attached to it, and that transition cost belongs in the revised underwrite somewhere.

The seller pulling the listing after your revised offer is signal, though it cuts two ways. It could mean another buyer absorbed the original number uncritically. It could also mean the seller's basis does not allow them to close at your price, which is a capital structure problem on their side rather than a valuation disagreement.

The risk you did not name: in a 180-unit Waco facility, how concentrated is that legacy cohort by unit type? If the 5x10s represent a disproportionate share of total unit count, the churn risk is not evenly distributed across the rent roll.

What was the unit mix breakdown, and how many of those legacy-rate units sit in the same size tier?

My storage GP just told me 88 percent occupied means 71 percent of gross potential rent collected

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