RR: Rent Rolls 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.
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What is a Rent Roll?
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.
Related Questions
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. It essentially synopsizes the potentially dozens of leases—which may be 20, 30, or even 100 pages—into a clear and neat one-pager. Not only does it show the rental income, but it also provides an array of information, like the tenant name, lease start date, lease end date, CAM reimbursements, deposits, rented square footage, etc. A rent roll is a complete synopsis of the tenancy of a commercial property.
What information is included in a rent roll?
A rent roll document provides valuable details on the rental units of a commercial property. Generally speaking, rent roll data varies by property type. In many cases, however, rent rolls typically include information about the property itself such as the owner, address, management company (if applicable), and asset type. There is more variation in information regarding unit data, but some of the more common data points include unit number, square footage, and number of beds/baths for a multifamily property. Beyond that, rent rolls also provide data on the tenants themselves, including name, monthly rent obligation, fees paid, lease term length, rental concessions, and security deposit status. Along with all of the aforementioned information, many also include a monthly or annual breakdown of rental income summaries essentially providing a snapshot of the gross rental income on a property or real estate portfolio.
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.
How is a rent roll used in commercial real estate?
A rent roll is used to determine the true income of an existing commercial property. It provides information such as tenant names and contact information, lease start and end dates, security deposits, CAM reimbursements, rented square footage, space descriptions, and other information. This information is used to calculate the total income of the property and is a key factor in determining the terms of a commercial real estate loan.
We’ve provided a sample of a rent roll here.
What are the benefits of having a rent roll?
Having a rent roll is incredibly beneficial for landlords and property managers as it provides a detailed look at the current state of a property's tenant base and income flow. It is an easily navigable document that can be used to analyze an investment property, compare the average rents of a property’s units with comparables currently on the market, and make necessary adjustments to pricing. Rent rolls can also be used to analyze a potential investment, understand whether the gross rental income is likely to increase, decrease, or remain constant in the foreseeable future, and compare the rent roll with the income portion of the profit and loss statement (P&L) to ascertain if the gross income reported on the P&L is accurate. Buyers are able to determine more granular information like how long a tenant has occupied the home, which may help in the estimation of how likely they are to continue paying the rent.
What are the risks associated with rent rolls in commercial real estate?
The biggest risk associated with rent rolls in commercial real estate is that they may not be 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.
How can a rent roll help a small business secure financing?
A rent roll can help a small business secure financing by providing lenders with key financial information about the property. This includes the market rate of the unit that is being rented, what the tenants are actually paying, concessions, late payments, deposits, the type of unit rented, lease start and end dates, and more. All of this information is used by lenders to evaluate the feasibility of a loan transaction. You can find a sample rent roll here.