48 percent of the move-ins at a facility I looked at in Visalia last spring came from a single apartment complex two miles away.

Pulling move-in addresses is underused. Most buyers stop at the rent roll and physical occupancy, which tells you the current state but nothing about where the demand actually originates or how fragile it is.

The assumption doing the most work in a 6.1 cap offer is that occupancy is stable and demand is distributed. You found a single-feeder concentration that made both of those false. That annex risk was not speculative, it was a disclosed plan from the complex owner, which means the seller's pricing had no basis once you stripped out the feeder. The 91 percent number was real. What it was measuring was not.

The risk you did not mention: even without the annex, referral-dependent demand is behaviorally different from need-driven demand. Tenants coming in through a discount incentive have a lower switching cost than someone who moved and genuinely needed off-site space. If the referral deal ended or the complex changed management, churn from that cohort could accelerate faster than the headline occupancy implied. So the concentration was two risks, not one. Supply risk from the annex and retention risk from the incentive structure itself.

On your question, pulling move-in addresses is not standard, which is part of why the edge exists. Operators who do it systematically are reading demand quality, not just demand quantity. A facility at 85 percent with organic, distributed move-ins is a structurally different asset from one at 91 percent with a feeder arrangement holding it up.

One thing worth confirming with your attorney: if the seller had visibility on the referral arrangement and the complex owner's plans, there may be a disclosure question. I will not go further than naming that, but it is worth the conversation.

What does your address-pull process look like on the data side? Are you geocoding manually or running it through something?

Pulling address data is something underwriters on the lending side started requiring after a few deals got repriced mid-close for exactly this reason, though most buyers still treat it as optional due diligence rather than a first-pass filter. The concentration risk here is straightforward: one referral agreement between two operators, neither of whom you control, is holding up roughly half your stabilized occupancy, and that agreement has a visible exit trigger already in motion. At 6.1 cap you are paying for durable, diversified demand that does not exist in this rent roll. The number doing the most work in the seller's pricing is the 91 percent physical occupancy figure, and that figure has a single dependency underneath it that the cap rate does not reflect.

What I would want to know before I revisited a deal like this is whether the referral agreement was in writing and whether it transferred with the sale, because if it did, you at least know the timeline and terms of its termination rather than relying on what the apartment owner is "considering." Did you find out whether the complex owner had a permit application in for that annex, or was it still at the conversation stage?

Concentration risk in customer sourcing is the same problem as tenant concentration in a strip center, and buyers check anchor exposure there without being asked.

Take a 200-unit facility at 91 percent occupancy, so 182 paying units. If 48 percent trace to one feeder, that is roughly 87 units. At say $110 average rent, that is $9,570 a month sitting on one landlord's decision to build a parking-lot annex. Underwrite that block at 60 percent retention after the annex opens, which is generous, and you lose about $38,000 in annual revenue. At a 6.1 cap that revenue loss destroys roughly $623,000 in value. The seller was pricing stabilized diversified demand and the asset was neither.

The step I would add to what you did: ask the apartment manager how the referral deal was documented. A signed agreement with a termination notice period is a different risk profile than a handshake that ends the day the annex gets a permit. If it was a handshake, the eighteen-month timeline you estimated could compress to thirty days with no recourse.

The other thing worth running down on any facility with this kind of single-feeder exposure is whether the apartment complex owner has talked to anyone about financing the annex yet, because a permit pulled is not the first signal, the construction loan inquiry is.

Was the referral arrangement written down, or did the apartment manager describe it as informal?