What Are Multifamily Concessions and How Do They Impact Value and Refinancing?

Multifamily concessions are a common leasing strategy, particularly in competitive or supply-heavy markets. While concessions can help operators maintain occupancy and leasing momentum, they also influence net effective rent, property value and refinancing outcomes.

Understanding how multifamily concessions work and how lenders interpret them has become increasingly important for operators navigating today’s capital markets, particularly as refinancing underwriting becomes more sensitive to net effective income.

What Is a Concession in Multifamily Real Estate?

In multifamily real estate, a concession is an incentive offered by a property operator to encourage a renter to sign a new lease within a multifamily asset. Concessions are most commonly used during new construction lease-up periods, when a property is building initial occupancy. In supply-heavy markets, broader multifamily fundamentals often influence how aggressively operators use concessions.

They are also used in competitive environments or softer market cycles to maintain leasing velocity without permanently lowering advertised rents.

Rather than reducing the headline rent, operators often structure concessions to preserve pricing while lowering the renter’s effective cost over the lease term. This allows the property to remain competitive while protecting long-term rent positioning.

Concessions are typically tied to new leases. They are rarely used for renewals, although renewal concessions have become more common in recent periods in certain submarkets.

While concessions are fundamentally a leasing tool, they also affect how income is measured and evaluated, particularly when a property is reviewed for refinancing or sale.

Common Types of Multifamily Concessions

Multifamily concessions can take several forms depending on market conditions and leasing goals. While the structure may vary, the objective is consistent: reduce the renter’s effective cost without permanently lowering the advertised rent.

Common examples include:

• Free rent: One or more weeks or months offered upfront, often structured as “one month free on a 12-month lease.”
   
• Temporary rent reductions: A reduced rent amount applied during the first few months of the lease.
   
• Move-in credits or gift cards: Incentives to offset deposits, application fees or moving costs.
   
• Leasing or broker incentives: Additional commissions or bonuses to drive traffic and lease execution.

Each of these structures reduces net effective rent over the lease term. That distinction becomes important when evaluating income performance and refinance potential.

Are Multifamily Concessions the Same as Lowering Rent?

No. While both approaches reduce the renter’s cost, concessions and permanent rent reductions are not the same.

A concession lowers net effective rent for a defined period while preserving the contractual or headline rent. For example, offering one month free on a 12-month lease reduces the average monthly rent collected but does not change the signed base rent.

A permanent rent reduction resets the contractual rent. That lower rent becomes part of the property’s operating history and influences comparable rents, valuation benchmarks and future pricing strategy.

Operators often prefer concessions because they offer flexibility. When market conditions improve, concessions can be removed more easily than reversing a rent cut. This is often referred to as concessions “burning off.”

However, while concessions may preserve headline rent, lenders and buyers focus on actual income collected, not advertised pricing.

How Do Multifamily Concessions Affect Property Value?

Multifamily property value is largely driven by income. Because concessions reduce net effective rent, they can influence net operating income (NOI) and, in turn, valuation.

Property Value = NOI / Cap Rate

When concessions reduce effective income, NOI declines unless offset by other factors. In a refinance or sale, that lower income can directly affect valuation and proceeds.

That said, not all concessions carry the same weight.

Lease-Up vs Stabilized Concessions

Concessions used during new construction lease-up are common and generally expected. Lenders do not typically view lease-up concessions as a negative signal. They are part of the absorption process.

Concessions required to maintain occupancy at a stabilized property are evaluated differently. Persistent concessions at stabilized occupancy may indicate that effective rents are below market or that demand is softer than advertised pricing suggests.

Duration often matters more than size. A short-term concession during a competitive quarter may have limited valuation impact. Ongoing concessions across multiple leasing cycles are more likely to influence underwriting assumptions and investor expectations.

For operators, the key question is whether concessions are temporary tools tied to absorption or structural components of the rent profile.

How Do Lenders View Multifamily Concessions During a Refinance?

During a refinance, including loans structured through agency programs such as Fannie Mae, lenders focus on the durability of cash flow. Because concessions affect net effective rent, they become part of the underwriting analysis.

In many cases, lenders underwrite to the income actually collected, not the advertised rent. Concessions reflected in trailing financial statements are often embedded directly into underwriting assumptions rather than assumed to burn off immediately.

Lenders also evaluate where the property sits in its lifecycle.

• Lease-up concessions are typically viewed as temporary.
   
• Stabilized concessions may lead to more conservative assumptions around effective rent, leverage and loan proceeds.

Stabilization timelines also matter. In supply-heavy markets, lenders may assume longer timelines to reach stabilized performance, particularly if concessions remain in place.

For operators preparing to refinance, documentation is critical. Clear reporting on concession trends, renewal performance and effective rent movement can help shape lender confidence.

Do Multifamily Concessions Hurt Your Ability to Refinance?

Multifamily concessions do not automatically prevent refinancing. However, they can influence how a loan is structured and sized.

The impact depends on several factors:

• How long concessions have been in place
   
• Whether they are tied to lease-up or stabilized operations
   
• Renewal performance once initial incentives expire
   
• Market conditions and competitive positioning

If concessions are temporary and well-documented, refinancing may proceed without material disruption.

If concessions appear structural or ongoing at stabilized occupancy, lenders may adjust leverage, extend stabilization assumptions or size proceeds based on net effective income.

Understanding how concessions appear in trailing financials is essential. Operators who anticipate lender questions early are better positioned to manage expectations around proceeds and timing.

What Should Multifamily Operators Be Tracking?

As multifamily concessions remain present in many markets, operators should look beyond physical occupancy and focus on income durability. Key metrics include:

Net effective rent trends
Track rent collected after concessions, not just advertised pricing.

Economic occupancy
Measure how concessions, bad debt and non-revenue units affect true income performance.

Renewal conversion after concessions expire
Monitor how many renters remain and at what net effective rent once incentives end.

Stabilization timing
Assess how long it takes to reach consistent occupancy and sustainable effective rent levels.

Competitive positioning
Stay aware of concessions offered by nearby properties, especially in submarkets with recent deliveries.

These indicators help operators anticipate how lenders may interpret performance during a refinance.

When Should Operators Talk to a Capital Markets Advisor?

Operators do not need to wait until loan maturity to evaluate the impact of multifamily concessions.

In many cases, the most productive refinance conversations begin well before a property enters formal underwriting. A capital markets advisor can help model how lenders are likely to view net effective rent, stabilization timelines and renewal performance based on current conditions.

That forward-looking analysis can clarify:

• Whether refinancing now makes sense
   
• Whether additional stabilization may improve proceeds
   
• How leverage expectations may shift
   
• How concessions may influence underwriting assumptions

Early preparation allows operators to approach refinancing discussions with clearer expectations and stronger documentation.

Final Thoughts on Multifamily Concessions and Refinancing

Multifamily concessions are a normal part of leasing strategy, particularly during lease-up and competitive market cycles. They do not inherently signal distress.

However, because concessions directly affect net effective rent, they also influence property value and refinance outcomes.

For operators, the question is not simply whether concessions exist, but how they are trending, how they appear in financial reporting and how lenders are likely to interpret them.

Understanding that distinction can help protect both timing and proceeds in a refinance.

Talk With a Debt + Equity Advisor

If your property is offering concessions or approaching a loan maturity, it may be worth evaluating how current performance will be viewed in underwriting.

Northmarq’s Debt + Equity team works with multifamily operators across lease-up and stabilized assets to model refinance scenarios, assess lender assumptions and align financing strategy with current market conditions.

Contact our team to discuss how multifamily concessions may affect your next refinance.