Used conventional turnover in my 55-plus model. Vacancy loss came in double.

Small deal, 44 units, age-restricted, secondary market. I underwrote 8 percent economic vacancy because that's what I use for conventional garden apartments in that market and it has held up for me across four buildings.

Actual year one economic vacancy was 15.4 percent. Not because occupancy was bad, physical occupancy averaged 92. The problem was days vacant per turn. Conventional turns in my other buildings run 14 to 21 days. In this building they ran 47 days average, and two units sat over 90.

The reason is the qualified applicant pool. Age restriction removes most of the market. Then the applicants who do come are moving out of a house they own, so their timeline is tied to a sale, and they don't sign a lease and move in three weeks. They tour, they think about it for two months, they tell their kids, then they sign for a start date six weeks out.

On 44 units at an average $1,340, that vacancy gap cost me about $52k against budget in year one. Missed my debt covenant test by a small margin in Q3 and had to have an uncomfortable conversation.

What I'd do differently: underwrite days-to-lease from actual comps in age-restricted product, not from my conventional buildings. And keep a bigger operating reserve in year one on any product type I haven't run before.

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1dpatel_reCS4A

Your diagnosis is right and I'd extend it. The 47 day average is the visible cost. The invisible one is that the same slow decision cycle works in your favor on the other side, so your renewal rate in age-restricted should be materially better than conventional. What was it?

If you're renewing at 70 percent in conventional and 85 in this building, your annual turn count drops from about 13 units to 6.6, and 6.6 turns at 47 days is 310 vacant days against 13 turns at 18 days being 234. Still worse, but the gap is a lot narrower than 47 versus 18 makes it look. Model it as annual vacant days per unit, not days per turn. That's the number that ties to revenue.

The other thing I'd change in the underwriting is treating pre-leasing as a real input. Because these residents sign six weeks out, you can know your occupancy further ahead than in conventional, if you're tracking notice-to-vacate against signed-not-moved-in. Most small operators track neither. A weekly report with those two columns would have told you in month two that your 8 percent was wrong, and you'd have gone to the lender before the Q3 test instead of after.

What did your reserve look like at close, and what would you size it at now?

Used conventional turnover in my 55-plus model. Vacancy loss came in double.

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