How do you quantify the income at risk across an industrial portfolio?
You quantify income at risk across an industrial portfolio by taking each lease's rent and estimating the part that could be lost over a set horizon: rent under leases that expire or break in that window and may not renew, rent from tenants whose credit could fail, and the months of downtime and re-letting cost if either happens. Summed and ranked, that gives an expected loss and a list of the tenancies that drive it. Scayled does not calculate it; when a unit at risk comes back, it finds 250 to 350 businesses the building suits and the person who signs at each.
- What is income at risk?
- What data do you need?
- How do you calculate it?
- How do you stress test income at risk?
- How do you reduce income at risk?
- What does Scayled cost?
What is income at risk?
Income at risk is the contracted income that could be lost over a chosen horizon, usually the next one to three years. It is expressed either as an expected figure, weighting each possible loss by its likelihood, or as a stress figure, showing the loss if specific events happen.
It differs from a rent roll, which shows income as contracted, and from WALE, which shows how long that income runs on average. Income at risk asks how much of it might stop, and why.
What data do you need?
Lease data: rent, expiry, break and option dates for every tenancy, from Yardi, MRI or the fund's records. Likelihoods: a renewal probability for each lease ending in the window, and a probability of default for each tenant, from credit scores (Creditsafe, Dun & Bradstreet, Experian), CreditRiskMonitor's FRISK score for public companies, or MSCI's Income Analytics service, which is built to quantify real estate income at risk.
Costs: expected downtime in months if a unit comes back, the incentive and letting fees for a new tenant, and the outgoings the landlord pays on empty space. ARGUS Enterprise market leasing assumptions are a common starting point for these.
How do you calculate it?
For a lease ending in the window, expected loss equals the probability of not renewing multiplied by the cost of a void: rent for the downtime months, plus outgoings on the empty space, plus incentive and letting costs. For credit risk, multiply the tenant's default probability by the same void cost plus any unrecovered arrears.
As an illustration, a unit paying 600,000 a year with a 40 percent chance of not renewing, nine months of expected downtime, 60,000 of outgoings over that period and 150,000 of incentive and fees has a void cost of 450,000 plus 60,000 plus 150,000, which is 660,000, and an expected loss of 264,000. Sum this across the portfolio, then rank tenancies by expected loss.
How do you stress test income at risk?
Run named scenarios alongside the expected figure: the largest tenant leaves at its next break; every lease ending in the next two years has its renewal probability cut; downtime rises by six months across the board; a sector that several tenants share has a downturn. Each shows how concentrated the exposure is.
ARGUS Enterprise can run these as sensitivities on cash flow and value. The usual finding is that a handful of tenancies drive most of the risk, and that downtime is the input with the largest effect.
How do you reduce income at risk?
Raise the renewal probability on the tenancies that matter by opening conversations early and solving the tenant's operational problems; strengthen lease security where it is weak; and reduce the cost of a void by shortening downtime.
Downtime falls when the re-let starts before the handback and reaches businesses that are not searching yet as well as those that are. Scayled covers both groups: from a brief on the unit it lists 250 to 350 businesses whose operation fits, putting those already showing dated signs of needing space at the front, with a decision-maker and email for each.
What does Scayled cost?
Against an expected loss measured in months of rent, the cost is small and fixed. The Campaign is US$749 per unit for the Full list, delivered in about five working days, or from US$449 for a Focused list in about three, with no subscription and no commission on the letting.
Scayled does not score tenants, calculate income at risk or forecast vacancy; it is the action on the units the calculation flags. It works alongside the agent, and direct-to-occupier leasing explains why reaching businesses before they search cuts downtime.
Lease The Vacancy In-House, Before You Appoint An Agent.
The Campaign finds the 250 to 350 businesses the building suits, names the person who decides at each and writes every email, ready in about five days. One payment of US$749 per property, no commission and no subscription. A focused 100 to 150 from US$449.