why-is-a-rent-roll-important-to-investors

Why is a Rent Roll Important to Investors

If you are going to invest in real estate, then you must understand two important concepts that directly impact the underwriting and analysis process.

Why is a Rent Roll Important to Investors

If you are going to invest in real estate, then you must understand two important concepts that directly impact the underwriting and analysis process. The first concept and item is a rent roll. Let’s start with a simple definition…

What Is a Rent Roll & What Does It Include?

A rent roll is a crucial document that provides you with a high-level snapshot of the property. It breaks down and summarizes every tenant’s lease within the asset. Rent rolls typically include the following details:
  • Unit number
  • Lease start date
  • Lease expiration date
  • Monthly base rent
  • Rate per square foot
  • Expenses
  • Renewal options
  • Any other major lease related details such as right of first refusal or right of first offer
This information is essential because it allows a potential investor to understand all aspects of leasing and occupancy at the subject property. Once the rent roll has been reviewed, an investor or prospective buyer is able to use this information to begin their underwriting process.

Weighted Average Lease Term (WALT)

The second important concept that impacts the underwriting and analysis process is the Weighted Average Lease Term, also known as WALT. This, essentially, is a measurement of the average time left for all the current leases combined.

Why would you want to know this?
When underwriting a deal, you can determine how much leasing work needs to be done based on the WALT. For example, if there’s a smaller average weighted lease term left on the building, say one or two years, you’re going to have more leasing work. You’ll have to have brokers come in, or you yourself, will have to lease out the property. If you have a longer WALT, then the property is occupied for a longer period of time, and you will have less leasing work.

Does the weighted average lease term vary between asset classes?
The simple answer here is yes, but let’s dive a little deeper.

Typically, flex industrial deals have a lower average WALT – anywhere from two to three years. This can be due to the fact that many flex tenants typically only rent anywhere from 1,500 to 5,000 square feet. Most of these smaller spaces usually lease out for three years, with minimal tenant improvement allowances.

Now, let’s think about a large multi-tenant office building that you would find in your local downtown metro area, or in a suburban office park. Typically, these larger office building WALTs are longer, usually around five years. This is because larger office tenants typically sign leases for longer periods of time, anywhere from five to seven years, which will result in landlords paying larger tenant improvement allowances and allowing the tenant to customize their own space.

While WALT can vary across building types and really be any amount, at Excelsior, we look for at least a three year weighted average lease term in the flex asset class and a five year weighted average lease term in the office asset class.

If you’re interested in learning more about our investment process, please do not hesitate to contact us.

Previous Articles

the-ultimate-guide-to-commercial-real-estate-investing

The Ultimate Guide to Commercial Real Estate Investing

Learn everything you need to know to assess the benefits of a commercial real estate investment and make the best decisions to get started.
3-questions-to-ask-investing-in-a-commercial-real-estate-property

3 Questions You Should Ask Before Investing in a Commercial Real Estate Property

Every commercial real estate transaction requires thorough due diligence by the sponsor, but it’s just as important that you, an investor…

2021-in-review

Excelsior’s 2021 in Review

The alarm shrieks me awake at 4:10 in the morning. My faithful corgi, Tango, greets me at my bedside, and I groggily make coffee…

commercial-vs-residential-real-estate-1

Commercial vs. Residential Real Estate

Investing in real estate is a great way to begin diversifying your portfolio, but for those unfamiliar with the industry, how does Commercial vs. Residential compare?

what-is-a-1031-exchange

The Nuances of 1031 Exchanges

To go more in depth on the nuances of 1031 Exchanges, you will learn more about what a 1031 exchange is and what it is not.

using-ira-funds-to-invest-in-alternatives

Using IRA Funds to Invest in Alternatives

Using IRA Funds to Invest in Alternatives. In this blog, we’ll highlight one of the lesser known investment vehicles…

understanding-triple-net-leases-blog

Understanding Triple Net Leases

A triple net lease, often shortened to “NNN Lease”, is probably a term you’ve heard thrown around in the commercial real estate space.

Excelsior Capital

A real estate private equity firm that owns and operates high quality multi-tenant office assets in emerging secondary markets.

Interested in learning more about Excelsior's investment opportunities?
excelsior-capital-logo-icon-white

Disclaimer

Under no circumstances should any information presented on this website be construed as an offer to sell, or solicitation of an offer to purchase any securities or other investments. This website does not contain the information that an investor should consider or evaluate to make a potential investment. Other materials related to investments in entities managed by Excelsior Capital are not available to the general public.

Excelsior Capital

104 Woodmont Blvd, Suite 203
Nashville, TN 37205

Contact Us