Build a commercial cash-flow model from individual leases rather than applying one rent-growth assumption to the entire building. Each tenant can have different dates, concessions, increases, recovery terms, options, and landlord obligations. Those differences determine the timing of rent and capital—not just the stabilized annual total.
Begin with a documented lease abstract. Use monthly periods for the first year and major transitions. Aggregate to annual results only after the tenant schedules reconcile to the underlying agreements and the proposed leasing plan.
Define the model’s purpose and dates
An acquisition model should answer what cash is expected after closing, what capital is required, and what condition the property reaches at exit. Record the acquisition date, forecast dates, area basis, payment convention, and cash-versus-accrual treatment.
A lease commencement date, possession date, rent commencement date, and reimbursement commencement date can differ. A model with only one “start” field may apply rent or recoveries too early. Use separate fields when the economics require them.
For existing tenants, import contractual terms and flag uncertain interpretation. For prospective tenants, identify the assumptions and evidence supporting market rent, downtime, concessions, and delivery. A signed lease and an unaccepted broker proposal should not share the same certainty label.
An original hypothetical three-space model
Consider a 20,000-square-foot commercial building. All rents and terms below are invented for education.
| Tenant/space | Area | Annual base rent at stated rate | Timing assumption |
|---|---|---|---|
| A | 10,000 SF | $180,000 | Pays all twelve months; expires end of year two |
| B | 6,000 SF | $132,000 | Commences month four; three free base-rent months |
| C | 4,000 SF | $96,000 | Assumed commencement month seven; two free base-rent months |
Tenant A contributes $180,000 in first-year base rent. Tenant B’s paid months are seven through twelve, six months at $11,000, totaling $66,000. Tenant C’s paid months are nine through twelve, four months at $8,000, totaling $32,000. Total first-year base rent is $278,000.
The annual full-rate rent across all spaces is $408,000. Using that number in year one would overstate first-year base rent by $130,000 before any other differences. The error comes entirely from timing and concessions.
Build separate rent and concession lines
Show scheduled contractual base rent and the concession adjustment rather than burying free rent inside an average monthly rate. That makes comparisons and audits easier. It also preserves the contractual future rent when concessions end.
If a concession applies only to base rent, do not automatically waive recoveries. If the lease abates all payments, reflect that actual provision. Record any conditions or repayment obligation under the document rather than assuming standard treatment.
A late rent commencement can also delay tenant-improvement reimbursement, guarantee timing, or other obligations. Map those dependencies. The model should reflect what each date changes instead of applying a generic start switch to the entire lease.
Recoveries require another tenant schedule
Assume first-year collectible recoveries are $30,000 from A, $12,000 from B, and $4,000 from C under the hypothetical lease terms. Total recoveries are $46,000. With $278,000 base rent, effective revenue before other items is $324,000.
Assume operating expenses are $140,000, producing $184,000 NOI under the model’s stated convention. This result must be supported by a recovery calculation rather than a percentage chosen to make the total work.
For each tenant, identify eligible pools, allocation basis, caps, exclusions, base years, gross-up provisions where actually applicable, and reconciliation timing. A recovery bill and a cash collection may occur in different periods. Track receivables if material.
Kimco’s annual filing is a useful public reference for commercial revenue categories and leasing disclosure. It does not establish the recovery terms of this illustrative building or any Chicago property. Kimco 2025 Form 10-K
Add landlord capital beside the lease
Assume B requires $60,000 of landlord-funded improvements, C requires $80,000, and total leasing commissions are $14,000. First-year leasing capital is $154,000. Subtracting it from $184,000 NOI leaves $30,000 before financing, other capital, reserves, and taxes not included in the model.
A model showing only stabilized rent would conceal this transition. Schedule the actual payment dates: signing, possession, progress completion, occupancy, or another contractual trigger. If a lender reimburses qualifying costs, show the draw separately from the expenditure.
Track contingent obligations as well as paid amounts. A landlord allowance can become payable after the tenant supplies documentation. A cash payment may occur after rent begins. The investor needs a liability schedule even when the money has not yet left the account.
Model rent steps explicitly
Suppose A has a 3% contractual increase at the start of year two. Its annual base rent becomes $185,400. Do not also apply the property’s general rent-growth assumption to that same lease if doing so double counts the increase.
Some leases use fixed dollar steps, different annual dates, index provisions, or other formulas. Record the actual mechanism. For a forecast assumption dependent on a future index, use a stated scenario and explain that the future value is unknown.
A property-wide market-rent growth assumption belongs primarily in the assumptions for new or resetting leases, where appropriate. It should not overwrite existing contracted rent simply because the forecast period changes.
Treat expiry and renewal as decisions
At A’s end-of-year-two expiry, model at least a renewal and a replacement case. Include rent, downtime, concessions, improvements, commissions, and any period of holdover only if supported by the actual situation.
A renewal at lower face rent can produce better near-term cash than replacement at higher rent after downtime and substantial capital. Compare dated net cash over a consistent period. The best lease decision is not always the highest quoted rent.
If using a renewal probability, disclose the basis and show the unweighted scenarios too. A probability-weighted forecast can smooth away a large actual capital need. The owner either funds the replacement buildout or does not; an average cost does not necessarily represent the required liquidity.
Avoid overlapping vacancy deductions
If the tenant schedule explicitly includes vacant months, do not automatically deduct the same vacancy again through a property-level allowance. A separate credit-loss or general vacancy allowance may still be appropriate, but its purpose must be distinct.
Reconcile modeled occupied area, leased area, rent-paying area, and collectible revenue. They are not always identical. A tenant in free rent can be physically occupied but not paying base rent. A delinquent tenant can remain leased and occupied while producing reduced cash.
Use control totals: tenant area plus vacant area equals adopted rentable area; tenant rent equals property scheduled rent; recovery totals equal recovery revenue; capital obligations equal the leasing-capital schedule. A failed control should be visible.
Separate lender and investor views
A lender may normalize concessions, vacancy, management, taxes, or reserves differently from the buyer’s cash forecast. Preserve both views and reconcile the difference rather than silently replace one with the other.
The OCC handbook is a lending-underwriting reference, while Fannie Mae’s NCF definition demonstrates a specific reserve adjustment in multifamily lending. Neither replaces the subject leases or determines a private commercial investor’s distribution calculation. OCC CRE handbook, Fannie Mae NCF definition
For financing, submit the lease abstract, rent roll, cash forecast, and capital schedule together. Jaken’s commercial overview can help identify the relevant asset-class inquiry, subject to actual underwriting. Jaken commercial financing
Chicago implementation and ongoing use
Use exact premises, lawful use, and actual delivery conditions for the subject jurisdiction. A proposed restaurant, medical office, or industrial tenant may need work or approvals that change commencement and funding. Obtain property-specific input rather than a generic local timeline.
After closing, reconcile actual billings and receipts to the model monthly. Record amendments, concessions, defaults, renewals, and new commitments as they occur. Preserve earlier versions so management can explain changes from the original thesis.
The finished model should let an investor select a tenant and trace its lease terms into revenue, recoveries, capital, cash, and exit value. If the chain cannot be followed, a polished property-level summary is not yet a reliable commercial underwriting model.
Audit one tenant from end to end
Choose a material tenant and manually calculate its first twelve monthly payments, first rent increase, first recovery reconciliation, improvement allowance, commission, and expiry. Compare each amount with the model. Then deliberately move its commencement by one month and confirm that all dependent cash flows move appropriately. A model that changes rent but leaves a commencement-linked allowance unchanged may implement the contract incorrectly.
Also test a vacant space with no signed lease. Turning off the assumed new tenant should remove its rent and recoveries, preserve unavoidable building costs, and remove only the leasing costs that would not occur without that lease. This reveals hidden formulas that assume every space is occupied or that vacancy eliminates all expense.
Keep a change log recording amendments and reviewer approval. Tenant names can change while the legal obligor remains different, and a property manager’s nickname is not a substitute for the contracting entity. Stable lease IDs help preserve the chain from document to model.
The cited Fannie Mae glossary is the version effective April 30, 2026; its terminology is program-specific and should be reconciled with the applicable product and current loan documents.