Challenges of the Lease-Up Period

As a crucial point in time for a commercial property, the lease-up period accounts for the space of time between pre-leasing and stabilization — which is when the asset reaches the breakeven occupancy rate. During lease-up, project investors or developers focus on signing as many leases as possible, as quickly as possible. A successful lease-up period not only reduces vacancy fears but works to free up cash flow during the early stages of the project. While it may seem like an easy feat for a brand new project to attract lessees, the truth is that the lease-up period isn’t without its fair share of challenges.

What are the challenges of the lease-up period?

While most people tend to fall into the belief that newer is better, a good portion of the challenges that a lease-up property faces stem from the newness of the project. Lease up — particularly with new construction — seems to invite a different set of obstacles in comparison with working to fill vacant units in an established and stabilized property. Truth be told, it isn’t too far-fetched, considering that establishing a brand in any market is usually hard-going. Even so, some of the more glaring issues presented during the lease-up period include:

Costs

The lease-up period is such a critical time for a property that investors and developers often allocate substantial portions of their budget towards it. And to be fair, the costs of the lease-up period can be substantial. A successful lease-up may require items such as increased marketing spend, increased staff, leasing events and networking — all of which can contribute to a greatly inflated budget.

The pressures caused by the race to stabilization are major drivers for determining just how much should be spent during this time frame, but that's not all. When executed successfully, the income from lease-up can help investors and developers truly refine their projects. Adding useful technologies and processes and securing the right first batch of tenants, who are sure to thrive within the space, are making the transition from lease-up to stabilization a more seamless and stress-free process.

Marketing

Marketing a lease-up property can be tough. A new brand or even an established developer making entry into a market with a new kind of project can suffer from a lack of brand authority and trust. New projects often don’t have materials to market beyond developer concept art and floor plans. In an internet-focused society, not having the right online presence can mean a significant lack of reach and interaction. Established communities don’t typically have this issue, since more and more property and unit photos, videos, resident testimonials, and positive reviews, are naturally spawned as time passes by.

Even so, with the latest advancements in video technology, prospective residents can do virtual tours through a community, even if they are unfinished. This new technology does help to relieve some of the marketing burdens, but in some cases, the costs and time associated with these virtual tours can make it a non-option for many projects.

Schedule Management

Signing leases goes well beyond the actual paperwork. During a typical lease-up period for a new property, some of the largest pressures are placed on the property manager or the leasing agent. Most people don’t sign a lease without serious vetting of a property, and it falls on the aforementioned entities to schedule and execute the leasing process for each prospective lessee. This process includes numerous meetings, background checks, interviews, community and unit walkthroughs, and even after signing, new resident orientations — often while there is still employee training and construction going on on the project. All things considered, this can equate to a scheduling nightmare.

This, of course, only seems to compound the difficulties of trying to market a property that isn’t fully ready to be shown. Even after construction is completed, a new pain is born with simply scheduling move-ins. Adding to that, once there are residents actually living at the property, resident engagement is another concern, to ensure that early tenants are satisfied with the community. Ensuring that the property management company has all of the tools and training they need to operate at their best is essential to lease up success.

Final Thoughts

There is no easy way to get through the lease-up period, regardless of experience or the magnitude of a project and its offerings. A new community must endeavor to appeal to the market that it serves, and it is up to investors, developers, and property managers to aid in this process. Still, even with the obstacles presented during lease-up, there are very few notable failures and almost none that can’t be turned around at some point. Simply keeping the above challenges in mind can go a long way towards strategizing a successful lease-up for a new project.