How can you use lease performance metrics to prevent lease defaults?

2 Occupancy Rate

Occupancy rate is the percentage of leased space in a property or a portfolio of properties. Occupancy rate is a measure of how well a landlord is utilizing their available space and attracting tenants. A high occupancy rate means that the landlord is filling their space with tenants who pay rent and generate income. A low occupancy rate means that the landlord is wasting their space and losing potential income. To prevent lease defaults, landlords should aim to maintain a high occupancy rate by offering competitive rents, providing quality services, and retaining loyal tenants.

3 Tenant Satisfaction

Tenant satisfaction is the degree of satisfaction that tenants have with their leased space, the landlord, and the property management. Tenant satisfaction is a measure of how happy and loyal the tenants are, and how likely they are to renew their leases or refer other tenants. A high tenant satisfaction means that the tenants are satisfied with their lease terms, their space conditions, and their landlord-tenant relationship. A low tenant satisfaction means that the tenants are dissatisfied with their lease terms, their space conditions, or their landlord-tenant relationship. To prevent lease defaults, landlords should aim to improve their tenant satisfaction by listening to their feedback, addressing their complaints, and rewarding their loyalty.

4 Debt Service Coverage Ratio

Debt service coverage ratio (DSCR) is the ratio of NOI to debt service, which is the amount of money required to pay the principal and interest of a loan. DSCR is a measure of how well a landlord can afford to pay their debt obligations from their property income. A high DSCR means that the landlord has enough income to pay their debt and have some surplus. A low DSCR means that the landlord has insufficient income to pay their debt and may default on their loan. To prevent lease defaults, landlords should aim to have a high DSCR by increasing their NOI, lowering their debt service, or refinancing their loan.

5 Lease Expiration Schedule

Lease expiration schedule is a report that shows the dates when the leases of a property or a portfolio of properties will expire. Lease expiration schedule is a tool for landlords to plan and manage their lease renewals, negotiations, and marketing. A balanced lease expiration schedule means that the leases are staggered over time, so that the landlord can avoid having too many leases expiring at the same time, which can cause a sudden drop in income and occupancy. An unbalanced lease expiration schedule means that the leases are clustered around the same time, which can create a spike in income and occupancy, but also a higher risk of lease defaults. To prevent lease defaults, landlords should aim to have a balanced lease expiration schedule by diversifying their lease terms, offering incentives for early renewals, and anticipating market trends.