The period after a building is finished or renovated while it fills with tenants and its income climbs toward a stable level.
Lease-up starts when a new or renovated building opens and ends when it reaches stabilized occupancy. The OCC handbook defines stabilized occupancy as the level a property is expected to reach after it has been exposed to the market for lease-up over a reasonable time, on terms comparable to similar properties.
During this stretch the property does not earn enough to carry its debt, so the loan has to be built for it. A construction loan often includes an interest reserve sized to cover interest through construction and lease-up. Bridge loans, the handbook notes, usually run up to three years to allow for lease-up before permanent financing. A permanent lender’s commitment to refinance may be conditioned on lease-up to break even or better at minimum rents.
Expect reporting. The handbook says a bank should collect monthly leasing reports with rent rolls during lease-up and compare actual rents with the pro forma and the appraisal. A slow lease-up can use up the interest reserve and raise the loan-to-value at completion, so bring a leasing plan and a realistic timeline, and say what happens if it takes longer.
How it shows up in the data here
Not a field here. No public filing on this site says which loans are in lease-up or how full a building is. Construction and land loans appear as one balance per bank, so the nearest views are construction lenders and, for apartment buildings, multifamily lenders, which shows who made loans on five or more units.
Go further
- Construction lenders: Banks and credit unions with construction and land loans on their books.
- Multifamily lenders: Lenders with multifamily loans on the public record.
- DSCR calculator: Cash flow over debt service. Type the cash flow and the loan terms, see the ratio and the cushion before it falls to 1.00x.
- Construction loan package checklist: A construction lender is lending against a building that does not exist yet. The package has to show what it will cost, who will build it, where every dollar comes from, and how the loan gets repaid when it is done.
- How bankers evaluate a commercial loan deal: A credit officer asks one question five ways: how will this loan be repaid, and what happens if it is not? Knowing the five tests lets you size a request before you send it.
Related terms
- As-stabilized value: An appraiser's estimate of what a property will be worth on the future date it is projected to reach stabilized occupancy.
- Interest reserve: An account set up by the lender that pays the loan's interest during construction and lease-up, usually funded as a line in the loan budget.
- Absorption: The pace at which a market leases or sells available space, lots or homes over a set period.
- Bridge loan: A short-term loan that carries a newly built or newly bought commercial property until it is leased and earning enough to be sold or refinanced with a permanent loan.
- Take-out loan: The permanent loan that pays off a construction loan, or the commitment from a lender to make that loan once the project is finished and leased.
- Rent roll: A list of every unit or space in a property showing the tenant, the rent, the lease dates and what is vacant, as of a stated date.
Sources
Plain definitions for orientation, not legal, tax or credit advice. A lender's own policy decides what it will do.