I wanted to make another quick point on CRE underwriting as it relates to vacancy. Some of the more “with it” sellers have begun allowing vacancy factors underwritten into their offering memorandums.

What is often overlooked is the actual relation of the vacancy factor to operations. Often you will see a vacancy factor of 3% – 5% of the gross income deducted from the NOI. Somehow, this figure makes investors feel like they are buying under more secure conditions. Rarely do people actually quantify what the vacancy reserve actually equates to in operational terms.