# Break-even occupancy

Canonical: https://chicagocommercialfunding.com/tools/break-even-occupancy/

Find the occupied-income threshold for operations and debt service.

## Model inputs and hypothetical defaults

- Annual base rent at full occupancy ($): 500000
- Fixed collectible other income ($): 15000
- Annual fixed operating expenses ($): 180000
- Variable costs (% of collected base rent): 10
- Annual debt service ($): 150000

## How the model works

Required occupancy = (fixed expenses + applicable debt service − fixed other income) ÷ [potential base rent × (1 − variable expense ratio)].

## Worked illustration

With $500,000 potential rent and 10% variable costs, each 1% occupancy provides $4,500 toward fixed costs. The debt-inclusive requirement is $315,000 ÷ $450,000 = 70%.

## Use collectible revenue and classify expenses

The occupancy result is an income-weighted screening measure under a uniform-rent assumption. Enter potential collectible base rent at full occupancy, rather than the sum of unsupported asking rents. Fixed other income is assumed to continue at every occupancy level. If parking, recoveries or other income declines with vacancy, a more detailed model is needed.

Separate expenses that remain even when space is empty from costs that truly vary with collected base rent. Property tax, many insurance costs and debt service can remain while revenue falls. A general expense ratio copied from stabilized operations can understate vacancy exposure. The variable percentage input should reflect the specific convention used here, not the entire operating-expense ratio.

## Interpret an infeasible result

A result above 100% is an economic warning under the inputs, not a value to cap at full occupancy. The modeled property cannot cover the included obligations even if all potential base rent is collected. Review rent assumptions, expenses, debt burden and the investment basis. The tool reports operating and debt-inclusive thresholds separately so you can see the financing effect.

Neither threshold establishes cash available for owners. Tenant improvements, commissions, major repairs, replacement funding and ownership fees may still require cash. A fully leased building with concessions or unpaid rent can fail the income threshold. Test a lease-by-lease downside where suite rents, free-rent periods and tenant credit differ materially; physical occupied area alone cannot describe that scenario.

## Limitations

Assumes consistent rent per occupied area and fixed other income. Does not model differing suite rents, leasing costs or rent-free periods.

The canonical HTML page provides the interactive calculator. Inputs stay in the browser; hypothetical defaults are not current financing terms. Distinguish operating income, debt service, capital expenditures and investor distributions.

## Research and related reading

- [Source material](https://www.occ.treas.gov/publications-and-resources/publications/comptrollers-handbook/files/commercial-real-estate-lending/pub-ch-commercial-real-estate.pdf)
- [Use collectible income to assess break-even](https://chicagocommercialfunding.com/guides/measuring-break-even-occupancy-using-collectible-income/)
- [Separate occupied area and economic vacancy](https://chicagocommercialfunding.com/guides/physical-vacancy-versus-economic-vacancy-in-apartments/)