Companion file

How to Read a Commercial Lease

What Every Clause Does to Net Operating Income, Value and Risk

Julian R. Sterling

One Excel workbook. Chapter 19 computes the mark-to-market at 5,788,000 dollars, then says something unusually honest — “three refinements make the number usable rather than decorative” — names all three, performs none, and supplies every input each one needs. This file does the three. It is free. Nothing is gated behind a sign-up, and no email address is asked for.

• Appendix F · Chapters 18 and 19

  The mark-to-market, made usable

  The third refinement is already inside the headline, working the wrong way. Chapter 19 warns against capitalising a four-year over-market stream in perpetuity — “a buyer capitalizing it in perpetuity is paying for something that is not there”. The warning arrives four paragraphs after the headline, and the headline does exactly that. Four years of 54,000 is worth 186,049, not 864,000: the perpetuity overstates the deduction 4.6 times. Correcting it runs upward, to 6,465,951.

  Time-weighting removes twenty-eight per cent. A gap is an uplift that begins at expiry. The regional bank’s is worth 94 per cent of face, one year out. The coworking operator’s — the largest single gap on the rent roll — is worth 60, eight and a half years out. The largest gap is not the largest contributor, and gross 6,652,000 becomes 4,783,212.

  And netting the cost of realising it changes the answer rather than adjusting it. Chapter 18 priced it and never brought it across: renewal costs 32.01 a foot, re-letting 119.68. Applied at every expiry and discounted, the net mark-to-market is 2,788,730 at a hundred per cent renewal rate, 807,365 at sixty, and negative at twenty-five. Solve it: the break-even renewal probability is 43.7 per cent. Below that, a buyer is paying for a mark-to-market that does not exist — and the arithmetic is generous, because the uplift is a perpetuity while the cost is charged once, so 43.7 is a floor rather than an estimate.

  The correction is 2.8 times larger than the exercise the chapter performs in full. Printed 5,788,000; corrected 807,365; correction 4,980,635 — eighty-six per cent of the printed figure and 8.9 per cent of the asset. The chapter’s clause-by-clause value bridge, the best thing in the book, is −1,752,400 itemised to the dollar across five chapters. The larger number is three sentences.

  And the seventh item on its own closing list is negative. With every renewal probability at zero, the contractual-only mark-to-market on this building is below zero: capturing the gap costs more than the gap is worth. A seller quoting 5,788,000 of embedded upside and a buyer quoting a negative figure are reading the same rent roll correctly, and the distance between them is an assumption neither has been asked to state. Thirty checks.

  The_Mark_to_Market_Made_Usable.xlsx · XLSX · 17 KB

What to try first

Go to sheet 5 and read the break-even. Then change the capitalisation rate on sheet 1 and watch it move: a lower cap rate makes the perpetuity larger relative to the one-off leasing cost, so the break-even falls. Then replace the six tenancies with your own rent roll — everything downstream is formula.

What the arithmetic does not settle

It cannot tell you whether a tenant will renew, and the whole point of sheet 5 is that it does not have to: it converts the assumption into a threshold and hands the belief back to you. Nor can it read your leases — a termination option makes the honest expiry earlier than the contractual one, and the chapter is right that weighted average lease term to break is always shorter. Where a lease has one, put the break date in the years-left column and the whole file re-solves against it.

Conventions used throughout

Amber fill	an input — you may edit these
Grey fill	a formula — do not overtype these
ADDED	one input: the renewal probability — and sheet 5 inverts it into a break-even
Checks sheet	thirty controls — ten reproduce the book before anything is questioned

The building and its six tenancies are the book’s own and fictional, as they are in the book. The leasing costs are chapter 18’s. This is not valuation advice, and no workbook substitutes for reading the leases.

Opening the file

The workbook opens in Microsoft Excel, LibreOffice Calc, Google Sheets and Numbers. It uses no macros and no add-ins, so nothing needs to be enabled or trusted. If your spreadsheet asks to update links on opening, decline — there are none.

Also by Julian R. Sterling

The other books with companion files. The full list of titles is on the author page.

• Breaking Into European Defence ProcurementThe money and the instruments, the 35 per cent content test, and proposal economics.
• Closing the DealTwo defensible bridges 20.70 million apart, a peg worth 7.00 million, and the six choices that remove 6.60 of a 12.00 earn-out.
• CMBS and CRE CLOsWhere the loss actually lands, from appraisal reduction to realised severity, and what the B-piece is really being paid for.
• How to Read a Credit AgreementWhere the default actually comes from, the cure that costs 5.5 times the other, and the capacity nobody adds up.
• How to Read a Limited Partnership AgreementWhat the clawback actually collateralises, and why every dollar won on the tax clause lands in the uncollateralised column.
• How to Read a Private Funds Financial StatementsThe Harbourgate reporting pack, five worked cases, and rebuilding your own account.
• How to Read a Real Estate Loan AgreementThe cure ratio in closed form, the four-point window in which the cheap cure works, and the cure sized to the wrong threshold.
• Insurance Capital for Asset ManagersWhy the same fund costs two insurers different amounts, and what opacity costs a manager in euros.
• Logistics and Industrial Real EstateNet effective rent, the ageing asset, and the development letting decision.
• Office Real EstateA six per cent yield that returns 3.2 per cent once the re-letting cycle is paid for, and the headline-to-net-effective rent arithmetic.
• Operational Due Diligence in Private EquityThe rating model built and then broken, and why refining a rubric weakens it.
• Personal Finance for BeginnersWhat a minimum payment really does, and what the snowball and the emergency fund actually cost.
• Private Equity Investor RelationsWhat a fund has returned, read six ways — and the eleven-point gap between them.
• Private Equity Real EstateBoth worked waterfalls to the dollar, the two capital stacks, and the arithmetic of the promote made changeable.
• Private Markets PerformanceThirty-one of the thirty-three figures chapter 19 publishes reproduce exactly — and the two that do not are named rather than quietly adopted.
• Raising a Real Estate FundThe chapter 17 funnel run on a calendar — when the first close actually lands, and why more travel does not help.
• Real Estate FinanceFour people look at one building and reach four numbers; the lender is whole only above 105,109,489, twelve per cent below today’s value rather than forty.
• Real Estate Financial ModelingProperty, development and fund models built line by line, and the modelling test worked end to end.
• Real Estate Fund ManagementThe waterfall of 6.11, the build-to-core of 8.7 and the proceeds gap, reproduced as live formulas rather than asserted.
• Real Estate Joint VenturesThe JV waterfall and promote, the complete venture, and failure to fund.
• Real Estate Transaction Due DiligenceWhat the diligence cost, which workstreams paid for themselves, and the investigation the book skips, priced.
• REIT Analysis and ValuationFFO of 532.0, AFFO of 381.0, net asset value and dividend safety — every figure a formula you can change.
• Retail Real EstateThe occupancy cost of every unit in a centre, the sixteen per cent of the rent roll no tenant can sustain, and the right-size-convert-or-hold decision priced.
• Sale and LeasebackA €179.5 million transaction end to end, with rent cover measured on the entity that actually signs the lease.
• Self-Storage Real EstateThe cohort engine behind a 590-unit store, and the rate increase on existing customers priced against the move-outs it causes.
• Senior Living and Healthcare Real EstateThe resident engine of a seventy-bed home, the payor mix, and a rota costed at the employer's real hourly rate.
• Significant Risk TransferThe bank's ceiling and the investor's floor derived independently, and the narrow band of prices at which both can say yes.
• Stock Market Investing for BeginnersWhat compounding and fees actually cost, with figures — and a calculator for your own.
• Student Housing Real EstateRevenue per available bed against the rate card, the letting campaign week by week, and the cost base of a 520-bed scheme.
• The AIFMD II HandbookThe reverse stress test computed, and the facility term that moves it more than any asset.
• The Asset-Based Finance HandbookThe borrowing base off a live loan tape, the Meridian transaction, and trigger design.
• The CBAM Compliance HandbookWhat 2027 really costs, how big the buffer should be, and the term the surrender formula counts twice.
• The Co-Investment PractitionerWhat dilution really costs, what a pay-to-play clause is worth, and how much to hold back.
• The Continuation Fund HandbookThe Thalia transaction, the bid funnel, and the fees behind the roll decision.
• The Data Center Development HandbookThe underwrite computed: the levered return the chapter never builds, and what a twelve-month slip costs.
• The Distressed Debt InvestorWhere the fulcrum security actually breaks, and what an 80-cent recovery is worth once composition and time are priced.
• The ESG Manager in Private EquityThe exit in equity and IRR, the line the book drops, and the half-turn nobody controls.
• The EU AML HandbookThe back book sized, and the month beyond which no headcount recovers a one-year window.
• The Evergreen Fund HandbookWhat the sleeve costs, and the headline IRR at which a closed-ended fund merely ties.
• The Family Office ProfessionalWhat an office costs, and the level of wealth at which building one starts to pay.
• The Fund Finance ProfessionalChapter 8 builds the reported-to-eligible NAV bridge; chapter 9 computes every ratio without it. Two points at every state — and what a subscription line does to the IRR.
• The Growth Equity InvestorWhat a pro rata cheque really costs, and the band where defending your ownership loses money.
• The Infrastructure Investment AnalystDebt sculpted to a coverage floor, and one asset valued twice to the last decimal.
• The Private Credit InvestorThe two coverage ratios are not measured on the same thing: the erosion is 47.7 per cent, not the 28.7 the headline implies.
• The Private Equity Fund Controller PlaybookThe book defines IRR, DPI, RVPI and TVPI, tells you to update them at the exit, and prints not one value. Computed: a 1.833× deal inside a fund at 0.892 TVPI.
• The Private Equity Operating PartnerThe value creation bridge built in full, and who actually made the return.
• The Private Equity Secondaries InvestorThe seller’s floor beside the buyer’s ceiling — and the zone that usually is not there.
• The Private Fund Compliance OfficerThe grey zone as basis points, a broken deal four ways, and how many items you must test.
• The Private Markets Limited PartnerWhat a co-investment programme really saves, and the loss rate that erases it.
• The Private Markets Valuation SpecialistThe book describes its illustrations without numbers on purpose. These files close the chain, with every step visible.
• The Private Wealth FundraiserThree peaks, years apart, and the signature that tells a forecast miss apart.
• The Real Estate Asset ManagerBusiness plans, leasing, and what deferring the work on a building actually costs.
• The Real Estate Debt InvestorThe margin against the return on capital, the floor priced, and what prepayment protection buys.
• The Real Estate Development ManagerThe residual appraisal, the worked scheme, land diligence and the risk register.
• The Real Estate Secondaries InvestorAn eighteen per cent discount to net asset value that is really 9.18 once the reported value is unsmoothed.
• The Venture Capital AssociateWhat defending a position costs, and how many companies a reserve pool actually defends.
• Financial Risk ManagementA fund inside every limit that cannot meet a redemption — and the number that decides it is the one with no currency attached.
• Business ValuationThree advisers land 26.8 per cent apart on one company, and the whole gap turns out to be 1.96 points of perpetual growth.
• Quantitative FinanceThree models agree to a quarter of one per cent about a number that one unobservable input moves a hundred and three times as much.
• Asset ManagementFour people quote four returns for one mandate, all correct and 2.7017 points apart — forty-eight times the manager’s net skill.
• Alternative InvestmentsA manager reports 13.29 per cent and the endowment earns 6.26 — both correct, and only a third of the advertised advantage arrives.
• Credit AnalysisFour defensible EBITDAs on one borrower give leverage from 3.19x to 6.47x — and the add-back argument is fifty times the covenant headroom.
• Venture CapitalOne company out of twenty-eight returns 56.7 per cent of the fund, and half the capital goes in after the decision — at half the return.
• Machine Learning for FinanceFive people quote the accuracy of one credit model, all five are right, and the number that decides how much money it makes is none of them.
• Commercial Real Estate InvestingThe equity earned 8.6647 per cent and the investor received exactly 8.0000 — the preferred return, and nothing above it.
• Mergers and AcquisitionsThe board paper says the deal creates 13,436,667 of value. The arithmetic says it destroys 17,530,855. Nobody is lying.
• DerivativesThe treasury report says the hedge cost 1,233,698. That is the interest differential, not a cost.
• Treasury ManagementFive cash balances for one company, all correct and 145,600,000 apart — and the revolver that is two-thirds of the liquidity leaves at a revenue fall of 8.4127 per cent.
• Financial Planning and AnalysisRevenue 3.0190 per cent above budget and operating profit 16.3209 per cent below it, in the same quarter, with every figure correctly stated.
• Energy TradingA position report that is 91.7031 per cent hedged and correctly computed, on a book that is short 2,542,000 MWh — and a margin call of 198,400,000 the next morning.
• Construction Cost ControlA contract sum of 26,301,102 became a final account of 29,153,363 on the building that was drawn — and 85.8 per cent of what was lost was knowable on the day it was signed.
• Pricing StrategyA list price of 148.00, a pocket price of 112.51, and the nine deductions in between — with what one point of price is actually worth.

These files accompany How to Read a Commercial Lease. The book is on Amazon.

If this book helped — or didn’t — a few lines on Amazon are worth more than they look: they are what the next reader goes on. Write a review. The workbook stays free either way.