Loss to lease is the multifamily acquisition story in two words: the spread between what the units earn and what the market would pay, sitting in the rent roll, waiting to be captured. Deals get priced on it, decks get built on it, and the number that headlines those decks is almost always an average, which is the first problem, because loss to lease is not a number. It is a distribution, and the shape of the distribution is the actual deal.
Unpack any real rent roll and the average dissolves into cases. Some units sit two percent under market, noise, not opportunity. Some sit fifteen or twenty under, usually long-tenured residents under an owner who stopped pushing rents, and those units are where the thesis lives. The distinction matters because capturing the spread costs different amounts in different places: the deep-spread units are disproportionately occupied by exactly the residents most likely to leave if pushed hard, which means the biggest opportunities carry the biggest execution risk, and an average is structurally incapable of telling you that.
So the real underwriting object is the capture decision, repeated at every expiration. Renew at a modest increase and you keep occupancy, skip the turn cost, and leave spread on the table. Push to market and the resident either pays, closing the spread free, or leaves, and the unit pays vacancy days, make-ready, marketing, and leasing effort to reset at market, plus renovation capex if the plan calls for it. Neither answer is right in general. Each is right per unit, as a function of the spread size, the turn cost, the submarket's true velocity, and what the reposition plan needs from that unit. The property's income path is a few hundred of these decisions arranged across the hold, and pretending otherwise is how identical rent rolls produce very different outcomes under different operators.
Two honesty checks keep the thesis from flattering itself. First, verify the market side of the spread: loss to lease computed against asking rents inherits every fiction in the asking rents, and effective rents, concessions included, are the honest denominator. Second, respect the calendar: the spread closes at lease expiration speed, roughly a twelfth of the roll each month at best, and a pro forma that captures three years of mark-to-market in year one has confused the size of the opportunity with the speed of it.
This is the multifamily version of per-tenant underwriting, and it is native behavior in PropCalc™: the spread per unit, the turn economics, the renewal trade-off, and the pace, carried through the pro forma and the waterfall so the capture plan is a schedule someone can challenge rather than a percentage someone hoped. Loss to lease is real value. The capture rate is the underwriting.