Real estate cases live on NOI, cap rates, and cash after capex — not on occupancy as a vanity metric. A building can fill up and still lose cash.
Last full pass: 24 August 2026.
PE real-estate, MBB, and dedicated RE practices (and plenty of generalist second rounds) will hand you an office, multifamily, industrial, or retail property — or a REIT. If the client is a retailer deciding to open stores, that is retail four-wall, not a cap-rate case. If it is a corporate HQ lease vs own, you may need both this page and the finance case interview guide. Here the protagonist is the asset.
What you are deciding
- Buy / sell / hold / recapitalize at a cap rate vs your hurdle.
- Lease-up vs raise rents vs concessions. Occupancy bought with free rent is not NOI.
- Development: residual land value vs cost (including interest and lease-up vacancy).
- Portfolio mix (core vs value-add vs development).
Clarify NOI definition (and whether capex is above or below). Clarify occupancy vs economic occupancy (after concessions). Clarify who pays opex (triple-net vs gross). Ask whether “NOI” is in-place or stabilized (a broker’s favorite inflation). Ask the expiry wall: 91% occupied with 40% of sf rolling in 24 months is a different asset from 91% with 8-year WAULT.
Open with: (1) in-place NOI after concessions, (2) rent roll / rollover, (3) opex and unreimbursed costs, (4) capex + TI + commissions as cash, (5) value via cap rate and debt covenants. Occupancy is a volume proxy, not the objective.
Exhibits you should expect
| Exhibit | Trap |
|---|---|
| Occupancy % | Ignores free rent, TI, and below-market in-place rents. |
| Rent roll / expiry schedule | Rollover risk. |
| NOI bridge | Revenue vs opex vs concessions vs vacancy loss. |
| Cap rate vs comparable sales | Going-in vs exit cap. Exit cap up 50 bp kills a lot of IRRs. |
| Capex / TI / leasing commissions | Cash, often treated as “not in NOI.” |
Units that trip people
NOI vs occupancy. Occupancy is physical. NOI is cash from operations before debt. You can raise occupancy and cut NOI with six months free and $85/sf TI.
Cap rate = NOI / value (going-in). Price up, cap rate down. Do not apply a 5% cap to a 9% occupancy story.
PSF vs per unit vs per key (office / multifamily / hotel).
Stabilized vs in-place NOI. Underwritten “stabilized” occupancy is a forecast, not a fact.
Practice a real-estate NOI case
Run a scored case where occupancy and NOI move in opposite directions.
Worked mini-case: occupancy up, NOI down
Prompt. Harbor Tower is 400,000 sf office. In-place rent $42/sf. Last year occupancy 84%; this year 91%. Opex $9.5m (case inputs). This year they renewed 80,000 sf with 6 months free rent and spent $85/sf TI on 120,000 sf of deals (renewals + new). Debt service is a later question; first: did operations improve?
Math. Potential rent at 100% = 400k × 42 = $16.80m. Last year EGI (ignore other income) ≈ 0.84 × 16.80 = $14.11m; NOI ≈ 14.11 − 9.5 = $4.61m.
This year gross at 91% = 0.91 × 16.80 = $15.29m. Free-rent hole on 80k sf: 80k × 42 × 0.5 = $1.68m. Approximate EGI = 15.29 − 1.68 = $13.61m. NOI ≈ 13.61 − 9.5 = $4.11m. Occupancy +7 pp, NOI −$0.50m before TI.
TI cash = 120k × 85 = $10.2m this year (or amortized — ask). Either way, cash available to equity collapsed. If they capitalized TI and still quote “NOI up” on a broker slide that ignores concessions, challenge the exhibit.
Recommendation. Stop celebrating occupancy. Lease to economic occupancy (occupancy × (1 − concession rate)). Next year, prefer shorter free rent and lower face rent if it protects cash, or require a higher face that still NPVs after TI at your discount rate (finance toolkit). Risk: a 91% occupied tower with a 2028 expiry wall. Next exhibit: rent roll by year and TI per deal vs in-place.
What a generic profitability tree misses here
- Price is rent × occupancy × (1 − abatements), not list rent.
- Volume is sf occupied, but concessions are negative price.
- TI and capex are the real variable “COGS” of leasing.
- Value is NOI / cap rate, so opex discipline and lease quality move enterprise value more than a 3% occupancy headline.
- Leverage turns a small NOI miss into a covenant issue — cousin to restructuring.
If you treat Harbor Tower like a hotel ADR case without concessions, you will high-five occupancy. If you treat it like a retailer, you will talk comps. The unit is NOI after concessions and TI cash.
See where you stand on a real-estate case
Practice NOI vs occupancy and the cap-rate so-what.
Related guides
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