Break-Even Occupancy
Break-even occupancy = (operating expenses + debt service) / potential gross income.
Example
You enter
- Operating expenses ($/yr) 60000
- Annual debt service ($/yr, P+I) 90000
- Potential gross income ($/yr, fully leased) 200000
- Market/stabilized occupancy (%, optional) 92
You get
- Break-even occupancy 75%
- Cushion to market occupancy 17
Checked against published worked examples from: Wall Street Prep.
Details, formula, and sources
ScopeBreak-even occupancy = (operating expenses + debt service) / potential gross income, and the cushion to the market occupancy before a property goes cash-flow negative. OpEx $60K + debt $90K on $200K PGI = 75%, a 17-point cushion to a 92% market. The lender/market govern.
Formula or tableBEO = (OpEx + debt service) / PGI x 100 (%); cushion = market occupancy - BEO.
Source and editionThe break-even (default-ratio) occupancy definition used in real-estate underwriting, by name.
Free accessBreak-even occupancy (the default ratio) is a standard underwriting metric in CRE finance references and lender guidance. The lender and market govern the acceptable level.
What governsEstimate. AHJ and licensed professional govern.
API field namesopex, debt_svc, pgi, target_occ, beo_pct, cushion_pts
- Definition BEO = (OpEx + debt service) / PGI; cushion = market occupancy - BEOCRE underwriting
- PGI basis potential gross income = fully-leased rent plus other incomeCRE finance
- Underwriting aid not a full pro forma; inputs entered, not derivedscope of this tile