Apartment bldg refinance appraisal

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Is it possible to do a chasout refinance on a 10-20 unit apartment bldg by only increasing stable tenant occupancy.

To rephrase my question will lenders consider tenant occupancy as added value to the property?


I would recommend doing some more research on how commercial property is valued before speaking with lenders. Different types of commercial real estate in different areas will trade at different cap rates. For example, B-class multi-family commercial real estate in ________ zip code trades at a "7 cap" or 7% capitalization rate. This means, if you paid all cash for a property, it would provide a 7% return after all expenses, thus NOI(Net Operating Income)/Cost or Value of Property=Cap rate

NOI = Gross income - expenses. Therefore, if you can increase the income of a property by either raising rents, increasing occupancy and/or decreasing expenses, you increase the NOI of the property. This is what makes commercial RE so powerful is that you can force appreciation because commercial RE is valued based on its NOI and given cap rate for its property type and location. Many investors strategy is to find poorly managed commercial property, "reposition" by increasing the NOI and either selling or refinancing by putting new debt on the property to pull cash out(assuming the value has risen) and hopefully do it again and keep the snowball rolling.

Therefore, if you can increase the occupancy of property, you can increase the NOI, thus value, and refi however it doesn't come without risks. Cap rates are also subject to change as demand grows and slows. For example, as the multi-family market has gotten more and more hot these past few years, buyers are willing to take less of a return for a property thus shrinking cap rates. This in turn increases the value of propertys; however the inverse is also true. Some believe we are at the top of the cycle with some buyers buying A class properties in some major cities as low are 3 caps. Many say cap rates can't compress any more and will go up thus decreasing the value of your property which could inhibit your ability to refi even if you do increase the NOI.