Every offering memorandum with meaningful vacancy makes the same pitch: upside. Lease the empty space and the NOI jumps, the value follows, and the pro forma helpfully shows the stabilized picture in bold. The pitch is not false. It is incomplete in a specific, expensive way: vacancy is not missing income waiting to be collected. It is a project, with a budget, a timeline, and a probability of success, being sold to you at a price that assumes the project succeeds.
Price the project like a project. The vacant suite must be built out, and tenant improvement dollars on empty space run heavier than renewal TI, because you are buying the tenant's entire decision. The leasing commission is real. The downtime is not the OM's ninety days; it is however long this suite, in this condition, at this end of the center, actually takes, and the carry during that time includes the suite's share of taxes, insurance, and CAM, which stopped being recoverable the day the last tenant left. Stack those and the empty suite is not free upside. It is a capital commitment with a lease at the end of it, hopefully.
Then price the uncertainty, which is where the honest work lives. Why is the space vacant? A suite that sat empty through the seller's ownership is information: wrong size, wrong configuration, dead corner, a submarket with more space than users. The stabilized rent in the OM is an assumption about a tenant who does not exist yet, and it deserves the same skepticism as any other invented number. The clean way to hold all this is to think of the vacancy as an option you are paying for: the seller has priced some or all of the stabilized value into the ask, and your job is to figure out how much of that option premium the facts support, then bid as if the lease-up might genuinely take twice as long and land ten percent lighter than hoped, because sometimes it does.
Who should buy vacancy is a real question with an unfashionable answer: operators with leasing capability, broker relationships in the submarket, and the balance sheet to carry the project without stress. In those hands, vacancy is frequently the best-priced risk in the deal, because the market of passive buyers discounts it heavily and the capable operator closes the gap. In passive hands, the same vacancy is just a hole that eats.
The model's job is to hold both versions honestly. PropCalc™ treats a vacant suite as a lease-up event with its own rent, start date, TI, commission, and downtime, wired through the pro forma and the debt coverage, so the deal-with-lease-up and the deal-if-it-drags sit side by side. Lenders will underwrite the second version regardless. Buyers should get there first.