The obvious use of a rent roll is for owners and property managers to keep track of who is in what space, for how long, how much they pay, and if they are on time. But the rent roll can be useful in other ways, especially during due diligence.
1. Not only does it provide tenancy history, but a rent roll allows you to notice patterns. How long do tenants stay in a space? How long does it take to get it leased again? For owners, discussing this with an experienced broker can be helpful, as they’ll know what attracts tenants in the current market. They’ll be able to give suggestions on improvements that can be made to make the property more marketable.
2. Rent rolls are critical documents when evaluating potential investments. Prospective buyers can analyze cash flow and predict potential growth. They can also see when to expect tenant change over and understand who will likely stay put, as well as their payment history. Do the tenants pay rent in full and on time? Or is their history more troublesome?
3. With the property’s cash flow history laid out, it’s easy to identify comparable sites and assess market rates. Are the rates competitive? Have you checked recently? If they fall below current market, they may need to be increased at the end of leases to increase profits and fund updates to help maintain the viability of the property.
4. Lenders want to see an accurate, historic, and current picture of income. This allows them to predict future income and decide risk level. If high turnover and vacancy rates are shown, it’s important to look further. There may be ownership or property management problems causing holes in the rolls.
5. Keeping lease details organized may end up saving money. Owners want to be sure to send a lease renewal or non-renewal letter early to current tenants whose leases are up. You want to make sure you have enough time to market and list the space. Working with an experienced broker helps to minimize the pain of vacant properties.
Conclusion
Rent rolls provide a lot of information regarding a commercial property. Use them beyond tracking tenants and leverage information for due diligence, investment analysis, evaluations, and property improvements.
Jeff Salzbrun is the owner/broker of Commercial Equities Group (CEG). As a veteran-owned real estate brokerage, CEG has been involved in thousands of sale and lease transactions, ranging from single offices to 250,000+ square foot buildings. At CEG, we get your deal done. We know space, and we know the CRE business.
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