Introduction
Every property-level underwriting starts with the rent roll: the unit-by-unit or tenant-by-tenant table of lease data that shows what each tenant is paying, on what lease, for how long, and on what escalator. The rent roll feeds into the stabilized NOI bridge, the analytical process that converts the in-place income on the rent roll into the recurring earning power a buyer underwrites against. The bridge is where the analyst's judgment shows up: mark-to-market rent adjustments, vacancy assumptions, expense normalization, recurring capex reserves, and lease-roll modeling each move the stabilized NOI by meaningful amounts, and the bridge is the explicit accounting of how those adjustments aggregate.
A clean stabilized NOI bridge is also what separates institutional underwriting from amateur analysis. Buyers, lenders, and (in REIT M&A contexts) acquirers expect to see every adjustment documented with the supporting calculation, the data source, and the rationale. A bridge that hides the assumptions or skips the mark-to-market analysis on a portfolio with significant below-market rents systematically understates the asset's earning power, and a bridge that aggressively marks every below-market lease to top-of-market rents systematically overstates it. The right bridge sits between the two and shows the reader exactly where each input came from.
What a Rent Roll Contains
A standard institutional rent roll includes one row per tenant or unit, with the following columns at minimum:
- Tenant name and (where applicable) tenant credit / rating
- Suite or unit number
- Square footage (or unit count for multifamily)
- Lease commencement date and lease expiration date
- Current monthly or annual base rent (and rent per square foot)
- Escalator schedule (fixed bumps, CPI, FMR reset, or flat)
- Lease structure (FSG, MG, NNN, absolute net, ground lease)
- CAM and expense-recovery treatment (capped or uncapped, base year, gross-up provisions)
- Free rent remaining (months of abatement still to be applied)
- Renewal options (number and length of options, rent set at option exercise)
- Termination options (any contractual break rights, with notice and fee terms)
- Security deposit held by the landlord
- Lease guarantor (parent company, letter of credit, or none)
- Rent Roll
The unit-by-unit or tenant-by-tenant lease data table that lists every active and pending lease on a property, including base rent, lease term, square footage, escalators, lease structure, and special clauses. The rent roll is the data feed for property-level underwriting; the stabilized NOI bridge is the analytical process that converts it into a defensible recurring NOI figure.
For larger multi-tenant properties, the rent roll feeds into a separate lease abstract document for each major tenant, which expands beyond the rent roll's structured fields to capture clauses that matter for underwriting: assignment and sublease rights, use restrictions, exclusivity, co-tenancy, alteration rights, and any negotiated landlord obligations. Sophisticated buyers and lenders typically have the lease abstracts reviewed by counsel before closing, because clauses buried in lease bodies can materially shift the cash flow projection.
Lease Expiration Schedule and WALT
The rent roll generates the lease expiration schedule, which shows how many leases (and how much NOI) expire in each forward year. The standard format reports the percentage of total NOI expiring in years 1, 2, 3, 4, 5, and beyond. A property where 60% of NOI rolls in the next 12 months carries materially more lease-roll risk than the same property where rolls are spread evenly over a 10-year window, even when the current NOI is identical.
- WALT (Weighted Average Lease Term)
The weighted average of remaining lease terms across all tenants in a property, weighted by each lease's share of total NOI, expressed in years. A property with a 10-year WALT on investment-grade tenants is far less risky than the same property with a 3-year WALT on non-IG tenants. WALT is one of the standard inputs net lease REITs and CMBS underwriters use to price the property; a longer WALT typically supports a tighter cap rate and lower lender spread, all else equal.
The WALT and lease-roll schedule are the inputs that drive the property-level DCF: any near-term lease expiration must be modeled with renewal probability, downtime if vacant, TI and LC at re-leasing, free rent concessions, and the assumed market rent at the rollover date. Properties with concentrated lease rolls in a single year produce DCF outputs that swing dramatically with the renewal-probability and market-rent assumptions, which is why those assumptions are stress-tested explicitly.
Building the Stabilized NOI Bridge
The stabilized NOI bridge converts the rent roll's current-state income into the recurring earning power assumption that feeds NOI and, ultimately, the cap rate applied at valuation. The standard bridge structure:
| Bridge Line | Description | Typical Magnitude |
|---|---|---|
| In-place base rent (from rent roll) | Annualized base rent across all leased units | The starting point |
| Plus: mark-to-market on below-market leases | Roll below-market leases to current market rent at expiration | +0 to +20% for portfolios with vintage leases |
| Less: mark-to-market on above-market leases | Roll above-market leases down to market at expiration | -0 to -10% |
| Plus: expected lease-up of vacant space | Lease up vacant space at current market rent | +0 to +15% for partially leased property |
| Less: stabilized vacancy and credit loss | Apply normalized vacancy rate (typically 3-7%) and credit loss factor (0.5-2%) | -3 to -9% |
| Plus: other property income | Parking, signage, antenna, billboard | +1 to +5% |
| Equals: stabilized gross income | Pre-expense income at stabilized state | |
| Less: stabilized operating expenses | Normalized to property-type benchmarks | -20 to -45% of gross |
| Equals: stabilized NOI | Recurring NOI at stabilized state |
Each bridge line requires a defensible assumption. The mark-to-market adjustment in particular is judgment-heavy and warrants explicit documentation.
Vacancy and Credit Loss Assumptions
The stabilized vacancy assumption reflects the property's expected long-term occupancy under normal market conditions, calibrated against submarket norms and the property's historical performance. Standard ranges by sub-sector:
- Multifamily Class A: 4-6% stabilized vacancy
- Multifamily Class B: 5-7% stabilized vacancy
- Industrial Class A: 2-5% stabilized vacancy
- Office Class A trophy: 5-8% stabilized vacancy (in normal markets; significantly higher in soft markets)
- Office Class B: 8-15% stabilized vacancy
- Net lease single tenant: ~0% during lease, 100% at lease end if not re-leased
The credit loss adjustment captures the cumulative impact of tenant payment delays, lease defaults, and bad-debt write-offs. Typical assumptions are 0.5-2% of gross income, calibrated to the property's tenant credit profile and historical write-off rate.
Expense Normalization
The expense side of the bridge requires its own scrutiny. Trailing 12-month expenses often include one-time items (a major repair, a property-tax true-up, an unusual legal cost) that the buyer should not pay forward. Conversely, current expenses sometimes reflect under-investment: deferred maintenance the seller has been pushing off creates near-term capex obligations the buyer inherits. The normalization process strips out the one-time items, applies market-rate management fees (typically 2-4% of EGI), updates insurance to current premiums, and ensures property tax expense reflects either current assessed value or the post-sale reassessment likely to occur after a transfer. Property tax in particular can swing meaningfully on a sale: many jurisdictions reassess to market value at the transfer date, and a buyer paying meaningfully more than the previous owner's basis may see property tax increase by 30-50% in the first post-close year. Underwriters bake the reassessment into the stabilized bridge so the buyer does not over-pay for the property based on the seller's lower-basis tax bill.
Once the bridge produces a defensible stabilized NOI, the number flows directly into direct capitalization at the market cap rate to produce a value, or into the year-1 cash flow of a property-level DCF that projects how the stabilized figure evolves over the hold period as leases roll, capex hits, and the next mark-to-market cycle plays out.
Free Interview PDF Guide