Modeling Escalations Across a Rollover Schedule

A rollover schedule shows which leases expire when. A useful one shows what they are paying at expiration — because escalated rent, not the rate someone signed years ago, is what determines the renewal conversation.

Why the original rate is the wrong number

A lease signed at $27.50 escalating 3% annually is paying $35.86 in year ten. A rollover report showing $27.50 describes a portfolio that no longer exists.

The number that matters at renewal is the current escalated rate compared against market:

• Escalated rent well above market. The tenant has leverage. Expect a request for a reduction, and expect them to shop the space. A renewal at a flat rate may be a good outcome.
• Escalated rent well below market. You have leverage — unless the tenant holds a renewal option at a fixed or formula rate, in which case you have none at all.

That second case is why option terms belong in the rollover analysis alongside the rent. A below-market lease with a fixed-rate renewal option is not an opportunity; it is a liability that extends for the option term.

What a useful rollover report shows

Per expiring lease:

• Current escalated rate per square foot
• Rentable area
• Annualized current rent
• Expiration date
• Options: type, rate mechanism, and the notice window
• Estimated market rate
• Variance to market

Sorted by expiration, grouped by quarter.

Concentration is the real risk

Individual expirations are manageable. Clustered ones are not.

Four leases totalling 40,000 square feet expiring within one quarter is a materially different problem from the same four spread across two years. It concentrates leasing effort, concentrates downtime risk, and concentrates the cash flow impact if two of them leave.

Concentration is visible on a stacking plan in a way it is not in a chronological list, which is why both views are worth having.

Option exposure

An unexercised option is contingent exposure that a plain expiration list does not capture.

A lease “expiring” in eighteen months with a five-year renewal option at a fixed rate is not really expiring. It is a decision the tenant gets to make, and the outcome depends entirely on whether that fixed rate is above or below market at the time.

Model both branches. If the option rate is materially below market, assume the tenant exercises and plan around continued occupancy at a below-market rate. If it is above, assume they do not, and treat it as a genuine expiration.

Escalations and renewal rates

Where a renewal option prices at a formula — “the greater of the final year rate escalated by 3%, or 95% of fair market rent” — the escalated rate is a direct input to the renewal rate.

Getting the escalation history right therefore matters twice: once for what was billed, and again for what the renewal rate becomes. A missed escalation that understated rent for three years also understates the renewal floor, and that error extends into the next term.

Building it on current data

All of this depends on the escalation schedule being current in the system rather than something reconstructed when a report is needed.

Where escalations are applied by writing forward rent steps across the term, current rent is simply a lookup and the rollover report is accurate by construction. Where escalations are applied manually each year, the report is only as good as the last time someone remembered.

See how escalations write forward steps, and how rollover and option exposure derive from them.