Why is a Certified Rent Roll Important?

A certified rent roll in commercial real estate is a detailed document that lists all the rental income of a property, including tenant names, lease terms, rental amounts, payment histories, and other pertinent details. The certification indicates that the information provided is accurate and verified, often by the owner, a property manager or third-party auditor.

Here are three reasons why certified rent rolls matter in any potential transaction:

1. Verification of Income: A certified rent roll provides an accurate snapshot of the property’s rental income. This verification is crucial for potential investors or lenders who need to assess the financial health and income-generating potential of the property. It ensures that the reported income is accurate and reliable, reducing the risk of misinformation.
   
2. Tenant Analysis: The rent roll includes detailed information about each tenant, such as lease start and end dates, rent PSF, and payment history. This provides insight into tenant stability, lease expiration exposure, and occupancy rates. Understanding these factors helps in making informed decisions about property management, lease renewals, and upcoming tenant fit out.
   
3. Due Diligence and Valuation: During the due diligence process of a property sale or financing, a certified rent roll is essential to accurately value the property. It helps to determine the Net Operating Income (NOI), which is a critical factor in calculating the cap rate and overall property value. A certified rent roll provides transparency and confidence to buyers and lenders in the transaction process.

It is critically important certified rent rolls are accurate, for both property owners and investors. If inaccuracies are found, property owners may face lawsuits from buyers, lenders, or tenants for misrepresentation or fraud. Additionally, an inaccurate rent roll can lead to an incorrect property valuation, affecting investment decisions and potential returns. Those are just a couple of the reasons it is essential to make sure any certified rent roll you encounter is properly certified.

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Adam Dickert is a partner in Progress Realty Partners and is responsible for identifying and analyzing commercial real estate investments for acquisition. Progress Realty Partners has worked with passive investors to generate consistent returns through ownership of real estate.