Tortoise or Hare?

The lease-up decision that compounds across your portfolio

Lease incentives in rent-controlled multifamily can be framed as a race:

• Discount-to-Market is the tortoise — collecting revenue immediately from day one, but at a slower rate ($2,250/month).
• Free Rent is the hare — sprints at a faster pace once it starts ($2,400/month), but spends the first two months collecting nothing.

How do we decide who to bet on?

The crossover math

The math seems straightforward. The hare forfeits a $4,800 headstart by providing two months of free rent, but catches up at a rate of $150 per month. 

After we factor in discount rate, market rent growth, and guideline increases, they cross at month 37.

If the average tenant stays for 30 months, the tortoise wins. If they stay 40 months, the hare wins.

Easy decision, right?

The hidden assumption

But there's a complication: this isn't a one-time decision.

When the first tenant leaves, the unit is leased up again. Then again. And again. Our tortoise versus hare race is actually a relay that runs for the entire time we own the building.

And here's what most models quietly assume: every runner on both relay teams runs the same distance—36 months on average.

But tenants with discounts behave differently than tenants at market. The crossover math assumes they behave the same — but we know they don’t. Tenants with discounts have very little incentive to move, while tenants at market are way more likely to churn.

This tortoise versus hare decision repeats hundreds or thousands of times across large portfolios — meaning that erroneous assumption compounds.

So how do you decide who to bet on — the tortoise or the hare? The answer involves understanding how your tenants actually behave at different rent positions. Read the full analysis here.

ReturnSuite provides analytical tools to Principal Owners looking to make better acquisition and operational decisions in complex real estate systems.