What is a Rent Roll in Commercial Real Estate?
A rent roll is a list of all the current tenants of a property 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, so they are the most important 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, that doesn't mean it's always accurate. Whether by human error or intentional fraud, many rent rolls will present numbers that make the property appear much more profitable than it truly is. Therefore, it's the responsibility of a investor to conduct proper due diligence to confirm that rental tenants are actually paying what the rent roll says.
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, and, in many cases, tenants will 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.