Rent concessions and free rent periods affect modeling of NOI and cash flows by which of the following?

• A. They have no effect on NOI even during ramp-up.
• B. They reduce realized income in early periods, lowering NOI and cash flow; need to model ramp-up and vacancy accordingly
• C. They increase realized income in early periods due to incentives
• D. They only affect depreciation.

Answer: (B)

Rent concessions and free rent periods reduce the actual rents collected in the early periods of a lease. Because NOI is calculated from effective gross income (which reflects the rents actually received) minus operating expenses, these reductions lower the NOI in those initial periods. To model this accurately, you should include a ramp-up of rent realization and occupancy, acknowledging some vacancy or weaker collections before reaching stabilized NOI. They do not increase realized income, nor do they only affect depreciation; they directly impact NOI and cash flow in the early years.