Which of the following factors typically characterize assumptions in a downside scenario?

In a downside scenario, the characteristics generally reflect adverse market conditions that could negatively impact the performance of a real estate investment. One key aspect of such scenarios is the tenancy of the property. Lower occupancy rates indicate that fewer tenants are renting the space, leading to reduced income. This directly affects cash flows and overall financial performance.

Additionally, a higher exit cap rate is indicative of a perceived increase in risk or a potential decrease in future value at the time of sale. When investors anticipate that a property will be less desirable in the future—perhaps due to economic downturns—they require a higher return to compensate for the increased risk associated with the investment. Hence, the combination of lower occupancy and a higher exit cap rate is a classic hallmark of downside market assumptions.

In contrast, the other scenarios present either stable or improving conditions, which do not align with the typical characteristics of a downside scenario. Lower occupancy coupled with a higher exit cap rate effectively captures the essence of a negative market outlook.