In real estate modeling, "concessions" refer to incentives or discounts offered by property owners or landlords to tenants or buyers to make a property more attractive. These can take various forms, including:
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1. Rent Abatements: Temporary reductions or waivers of rent, often used to entice tenants to sign a lease.
2. Free Rent Periods: Offering a certain period of free rent at the beginning of a lease term.
3. Tenant Improvements (TIs): The landlord may pay for or contribute to the cost of customizing the leased space to the tenant's specifications.
4. Discounts on Purchase Price: Reductions on the sale price of a property.
5. Cash Incentives: Direct payments to tenants or buyers, sometimes referred to as "cash-back" deals.
6. Reduced Security Deposits: Lowering the amount required for a security deposit.
Generally all concessions will be defined by a single row in real estate models and based on a % of potential rental income. Sometimes, these reductions to income are just lumped into vacancy.
You may also be interested in what economic vacancy is in RE models.
Concessions are used to attract tenants or buyers, especially in competitive markets or when there is a need to quickly lease or sell a property. In financial modeling, these concessions are accounted for in cash flow projections, impacting the overall valuation and financial performance of the property.
Article found in Real Estate.
