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Desk 4: Real Estate & Private Equity • Tool #28 INSTITUTIONAL ARGUS-LITE UNDERWRITER

CRE Lease-by-Lease Rent Roll & WALT Underwriter

Underwrite commercial real estate property risk at the tenant lease level. Model in-place contract rents, calculate square-footage and revenue-weighted WALT, map 10-year lease expiration rollover cliffs, forecast re-leasing capital expenditures (TI/LC reserves), and evaluate Net Effective Rent (NER).

Institutional Presets:
Total Leased Area & Occ
185,000 SF
Occupancy: 94.8% (10,000 SF Vacant)
In-Place Gross Rent
$7,865,000
$42.51 / SF / Year
WALT (By Leased SF)
4.68 Years
Healthy Debt Coverage Window
WALT (By Annual Rent)
4.84 Years
Revenue-Weighted Duration
Top-3 Tenant Concentration
48.2%
Top: Nexus Tech (24.3%)
Peak Rollover Year
Year 3 (2029)
52,000 SF (28.1% of GLA)

Lease-by-Lease In-Place Rent Roll

Edit contract parameters or add/remove tenant leases dynamically.
Unit / Suite Tenant Name Leased SF Start Year Exp Year Term Left Contract Rent ($/SF) Escalation (%/yr) Lease Type Renewal Prob TI / LC Concession Net Effective Rent Action

10-Year Lease Expiration Rollover Cliff (SF Expiring by Year)

Tenant Revenue Concentration Breakdown

10-Year Lease Expiration Schedule & Re-Leasing Capital Budget

Current Underwriting Base Year: 2026
Year Calendar Year Expiring SF % of Building GLA Cumulative Rollover % Expiring Annual Rent Est. Downtime Expected TI/LC Reserve Credit Committee Risk Tier

Institutional Lease Underwriting & WALT Methodology

In institutional commercial real estate (CRE), property valuation is inextricably linked to the duration and credit quality of the underlying tenant lease contracts. While top-line capitalization rates and pro forma cash flows present a static snapshot, credit committee risk assessment centers on the lease rollover distribution and the Weighted Average Lease Term (WALT).

1. Weighted Average Lease Term (WALT) Formulas

WALT can be sized on a physical space basis (Square Footage) or an economic cash flow basis (Annual Rent). Institutional lenders evaluate both metrics:

WALT (by SF):
WALT_SF = ∑(SF_i × Remaining_Years_i) / Total_Leased_SF

WALT (by Revenue):
WALT_Rev = ∑(Annual_Rent_i × Remaining_Years_i) / Total_Annual_Rent

2. The Rollover Cliff & Re-Financing Risk

A Rollover Cliff represents a structural concentration where more than 20% to 30% of a property's Net Rentable Area expires within a consecutive 12-month window. If this cliff coincides with the maturity of the senior mortgage (e.g. a 5-year balloon loan maturing when 40% of leases expire), the borrower faces severe refinancing friction: lenders will underwrite the departing square footage as dark space, slashing proceeds and demanding cash-in capital injections.

3. Net Effective Rent (NER) Mechanics

Nominal face rents create an illusion of high asset yield. Landlords must invest substantial capital to attract and retain tenants. Net Effective Rent accounts for these landlord capital expenditures:

NER = Contract_Rent - [(TI_Allowance + Leasing_Commission) / Lease_Term_Years] - Amortized_Free_Rent

Frequently Asked Questions

Why do commercial banks require WALT to exceed loan maturity?
Commercial mortgage lenders typically require the property's WALT to exceed the loan term by at least 1.5 to 2.0 years. For example, a 5-year loan requires a WALT of 6.5 to 7.0 years. This covenant ensures that in-place lease cash flows remain legally enforceable across the entire debt amortization period, preventing the sponsor from defaulting due to tenant departures before the mortgage balloon maturity.
How does lease structure (NNN vs. Full-Service Gross) affect underwriting?
In a Triple Net (NNN) lease, the tenant pays base rent plus all property taxes, insurance, and common area maintenance (CAM). The landlord bears zero operating inflation risk. In a Full-Service Gross (FSG) lease, the landlord pays all operating expenses out of the base rent, subject to a 'base year' expense stop. In periods of high inflation, FSG leases experience operating margin compression unless protected by robust contractual expense pass-throughs.
How are Renewal Probabilities applied to TI/LC capital budgeting?
Institutional underwriters use a blended probability weighting (typically 65% to 75% renewal probability). Renewing existing tenants requires significantly lower capital outlay ($10 to $20/SF for minor cosmetic refresh and 2% to 3% leasing commission) compared to releasing to a new tenant ($50 to $90/SF for complete demolition/fit-out, 5% to 6% leasing commission, and 3 to 6 months of downtime vacancy). The expected capital reserve is calculated as: Expected Cost = (Prob_Renewal × Cost_Renewal) + ((1 - Prob_Renewal) × Cost_New).