Lease-Up
The period during which a new, renovated, or repositioned property is rented from vacant (or low occupancy) to stabilized occupancy. Lenders treat lease-up risk carefully because income hasn't yet been proven.
Lease-up is the phase when a property goes from empty (or under-occupied) to stabilized occupancy. It happens after new construction delivers, after a heavy renovation displaces tenants, or when an investor repositions a poorly run building. During lease-up the property isn't yet producing its full income — it's a transition between 'built' and 'cash-flowing.'
Why lease-up is a distinct risk
Until a property reaches stabilized occupancy (commonly defined as ~90%), its income is a projection, not a track record. A lender financing a property in lease-up is betting the units will fill at the assumed rents and pace. That uncertainty changes the loan:
- Permanent DSCR financing usually wants the property already stabilized — proven rents, signed leases.
- A property still in lease-up is typically financed with bridge or construction-takeout debt until it stabilizes, then refinanced.
A worked example
Newly built 20-unit building delivers vacant.
Lease-up plan: 4 units/month at $1,500.
Month 1: 4 leased (20% occupied)
Month 3: 12 leased (60%)
Month 5: 20 leased (100%) → approaching stabilization
Once ~90% leased and seasoned, the investor refinances
the construction/bridge loan into a permanent DSCR loan.
The pace (4 units/month) is the absorption rate assumption — and the biggest variable in whether the plan holds.
How lenders handle lease-up income
Underwriters discount lease-up projections heavily. They may underwrite to in-place signed leases only, require an interest reserve to cover debt service while units fill, and size the takeout loan on stabilized NOI only after occupancy and rent are proven. Optimistic lease-up assumptions are a common reason a deal looks better on paper than it underwrites.
How it's used in investor lending
If your business plan includes a lease-up, finance the gap appropriately: use bridge or construction debt with an interest reserve through stabilization, then take out permanent financing once the rent roll is real. Build a realistic absorption pace into your model and a contingency for slower lease-up — carrying an empty building's debt service is what sinks under-capitalized deals. Confirm the lender's definition of 'stabilized' (occupancy threshold and a seasoning period) before counting on the refinance.
This is general information, not financial advice.
Frequently asked questions
Can I get a DSCR loan on a property still in lease-up?
Usually not until it stabilizes. Permanent DSCR loans want proven, in-place income — signed leases at the assumed rents and roughly 90%+ occupancy. A property still leasing up is typically carried on bridge or construction-takeout financing, often with an interest reserve, and then refinanced into a DSCR loan once stabilized.
How do lenders underwrite income during lease-up?
Conservatively. They often count only in-place signed leases rather than projected rents, may require an interest reserve to cover debt service while units fill, and size the permanent takeout loan on stabilized NOI only after occupancy and rents are proven. Optimistic lease-up assumptions get discounted.
What's the biggest risk during lease-up?
Carrying the property's debt service and operating costs while income is still ramping. If units fill slower than planned (a weaker absorption rate) or at lower rents, an under-capitalized investor can run short before stabilization. A realistic lease-up pace, an interest reserve, and a contingency cushion are the standard defenses.