In Part 3 of The Real Cost of Vacancy series, Jason Williams and co-host Frank Patalano break down one of the most misunderstood concepts in commercial real estate underwriting: the difference between physical occupancy and economic occupancy. This episode dives deep into why properties can appear “full” on paper yet still bleed cash, how bad debt, concessions, loss to lease, and operational decisions impact true performance, and what red flags investors should look for during due diligence.

Topics Covered

• Physical vacancy versus economic vacancy and why the difference matters

• How a property can be 95 percent occupied and still lose money

• The impact of bad debt, delinquency, and non-paying residents

• Concessions, loss to lease, and how they reduce economic occupancy

• Model units and employee units as hidden drivers of economic vacancy

• Step-by-step examples calculating economic occupancy on a 100-unit property

• Why expenses and debt structure can erase strong occupancy numbers

• Agency debt requirements including the 90 for 90 rule

• Red flags on rent rolls including balances due, payment plans, and eviction notes

• Risks tied to lease expirations during low leasing seasons

• How eviction timelines and local laws affect underwriting assumptions

• What a healthy spread between physical and economic occupancy looks like

Quotes

“Physical vacancy is completely different than economic vacancy. You can be full and still be broke.”

“You don’t underwrite buildings based on how full they look. You underwrite them based on how much money they actually collect.”

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🎧 Connect with Frank:

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