RR: Rental Rolls in Commercial Real Estate

What is a Rent Roll in Commercial Real Estate? 

A rent roll is a list of a property’s current tenants and how much they pay in rent. In practice, a rent roll is perhaps the best way to determine the true income of an existing commercial property. While a commercial property may also have ancillary income sources-- such as parking spaces, vending, or even advertising space, rents are almost always the largest source of income. Because of this, they are the most important factor to take into account. 

Due Diligence is Essential When Examining a Project's Rent Roll

While a rent roll may be the best way to determine a property's income, it isn’t always accurate. Whether by human error or intentional fraud, many rent rolls present numbers that make the property appear much more profitable than it is. Therefore, it's the responsibility of an investor to conduct proper due diligence to confirm that rental tenants actually pay what the rent roll says. Of course, lenders are also interested in a property’s rent roll, and will use it as part of their underwriting process for commercial loans.

Rent Roll vs. Gross Potential Income

Unlike looking at a property's GPR, or gross potential income, which only shows what a property could make under ideal circumstances (100% occupancy at market rent), a rent roll provides a true snapshot of what a property is making right now. In practice, most commercial real estate projects won't be 100% occupied. Also, in many cases, tenants have signed leases locking them into a rate well below the current market rent.  

In addition to looking at a project's rent roll, other great ways to examine a commercial property's financial health include checking out its TTM (trailing twelve months) data, or its T3 (trailing three months) data. 

Additional Information and Sample Rent Roll

In addition to showing rental income, a rental roll typically provides additional information including tenant names and contact information, lease start and end dates, security deposits, CAM reimbursements, rented square footage, space descriptions, and other information.

We’ve provided a sample of a rent roll here.

To learn more, speak with a commercial real estate loan specialist today.