Economic vs. Physical Occupancy: Why “95% Occupied” Can Still Mean Trouble
High occupancy doesn’t mean strong cash flow — and confusing the two is costing investors millions.
By Mark Kenney I Think Multifamily
One of the most dangerous phrases in multifamily is:
“The property is 95% occupied.”
On the surface, that sounds like success.
In reality, it can hide serious cash flow problems.
Over the years — and especially in the last two — we’ve seen deals that looked stable collapse because investors and operators focused on the wrong occupancy metric.
Let’s clear this up.
Physical Occupancy: The Headline Number Everyone
Loves
Physical occupancy measures how many units are filled.
If you have 100 units and 95 have tenants living in them, your physical occupancy is 95%.
It’s visible.
It’s easy to understand.
And it’s deeply misleading when used alone.
Physical occupancy tells you who’s living there — not whether the tenants are actually paying.
Economic Occupancy: The Metric That Pays the Bills
Economic occupancy measures how much rent you’re actually collecting compared to what you should be collecting.
It accounts for:
Delinquencies
Non-paying tenants
Concessions
Bad debt
Write-offs
A property can be 95% physically occupied and only 80% economically occupied — and that gap is where deals quietly bleed.
Why the Gap Matters More Than the Number
Here’s the uncomfortable truth:
Debt service doesn’t care how many units are occupied.
It only cares how much cash hits the bank.
That gap between physical and economic occupancy directly impacts:
➡ NOI
➡ DSCR
➡ Reserves
➡ Cashflow
➡ Distributions
And it compounds fast.
Real-World Example: How “Strong Occupancy” Still Failed
We’ve reviewed deals where:
👉 Physical occupancy stayed above 90%
👉 Collections steadily declined
👉 Delinquencies aged into 60–90+ days
👉 Cash flow eroded month after month
👉 And evictions took well over a year to execute
The operator kept reporting “strong occupancy.”
The bank account told a different story.
By the time action was taken, reserves were depleted and options were limited.
The Silent Drivers Behind Falling Economic Occupancy
1. Aging Delinquencies
Late rent isn’t equal.
Once rent moves past 60 days delinquent, recovery rates drop sharply.
At 90 days, it’s often lost income — not delayed income.
Ignoring delinquency-aging masks real performance problems.
2. Concessions That Never Go Away
Short-term concessions can help stabilize leasing.
Long-term concessions quietly destroy revenue.
If concessions persist longer than expected, economic occupancy lags even when units are full. And, providing enticing concessions upfront can result in a tenant moving in for free and never paying you a dime.
3. Poor Enforcement and Collections Discipline
Weak follow-up, inconsistent notices, and delayed action turn temporary issues into permanent losses.
Collections are operational — but oversight is leadership.
What Operators Should Monitor Weekly
If you’re sponsoring or managing a deal, these numbers should be non-negotiable:
Physical occupancy
Economic occupancy
Total delinquency
Accounts Payable
Delinquency aging buckets
Weekly collections vs. billing
If these aren’t visible, you’re flying blind.
What Investors Should Ask (But Often Don’t)
Investors should go beyond the headline metrics and ask:
What’s the gap between physical and economic occupancy?
How much rent is over 60 days delinquent?
Are concessions shrinking or expanding?
How does this compare to underwriting assumptions?
If answers are vague, that’s a signal.
Why This Metric Separates Survivors From Casualties
In stable markets, the gap between physical and economic occupancy is manageable.
In stressed markets, it’s deadly.
Operators who monitor it closely:
➡ Intervene earlier
➡ Adjust staffing and collections
➡ Protect NOI
➡ Preserve options
Operators who don’t:
➡ React late
➡ Burn reserves
➡ Face capital calls or forced exits
The Bigger Lesson
Multifamily failures rarely come from one dramatic event.
They come from small signals ignored for too long.
Economic occupancy is one of the clearest signals you have.
Final Thought
If you remember one thing, make it this:
Occupancy doesn’t equal income.
Collections do.
Understanding the difference isn’t optional anymore — it’s survival.
🔗 Want the bigger picture?
This is one of the core warning signs discussed in our flagship guide:
Why Multifamily Deals Fail After You Close
👉 Read the full Blog here: The Silent Collapse of Multifamily Syndication
Learn the Hard Truths Before the Market Teaches Them to You
If you’re active in multifamily — or planning to be, don’t navigate this blind.
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