In addition to a deep understanding of tenant company’s business, investor underwriting in 2020 included additional tenant scrutiny such as rent relief considerations, lease restructuring due to cash flow constraints and plans for returning to the workplace, according to Leah Gallagher, city leader for Transwestern’s San Antonio office. Once an investor and lender become comfortable with the tenant’s commitment to the office location and financial reputation, the timing of the lease expiration and forecasted market rates are analyzed to measure how impactful this renewal or vacancy may be to the cash flow.

In situations where there is limited supply, the near-term expiration of a tenant paying below-market rates will be viewed favorably by investors as a mark-to-market opportunity. On the other hand, if there is an abundance of available options or the tenant is paying an above-market rental rate, the investor will likely reduce the retention ratio of the tenant and base an offer on market rents rather than in-place rents.