The Encyclopedia of Commercial Real Estate Advice

ENCYCLOPEDIA TOPIC GDevelopment

Absorption Schedule: Be sure to figure this out to estimate when the property will break even

For a developer to determine accurately what their total project cost will be, they need to know the absorption schedule. An absorption schedule is an estimate of the timeline for a newly developed property to reach stabilized occupancy (see Encyclopedia Topic B, Due Diligence) once the certificate of occupancy (see Encyclopedia Topic G, Development) is obtained. For example: The absorption schedule indicates that the property will be 60% leased within four months of completion. Feasibility studies and commercial construction appraisals have an estimated absorption schedule, which is one of the most important metrics for developers and their lenders and investors. The developer needs to know how long it will take for the property to be able to break even once the construction is completed; they may need to inject extra money into the project until then. For the lender to estimate construction interest and the loan term, they need to know the time it will take to construct the property and the absorption schedule. The developer will need to know the absorption schedule to know when their investors can start getting draws on their cash invested.

Time and Money Saving Tip

Of all the commercial construction projects I have worked on, very few reached stabilization that matched the absorption schedule forecasted in the feasibility study or construction ...