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Tenant Concentration Risk Calculator
Concentrated tenant rolls carry cap rate premiums. This calculator sizes the risk.
Adjusted cap rate
6.50%
Concentration premium (bps)
25
Value impact
-$3,200,000
How the math works
HHI scores concentration; premium adds 25-100 bps to cap rate. Value impact = NOI ÷ adjusted cap − NOI ÷ base cap.
Concentration premium is a blunt proxy — real cap rate spread from a single tenant depends on that tenant's credit and lease term. IG credit on a 15-year triple-net? No premium. Sub-investment-grade on a 3-year short-term? Wider than 100 bps.
How to Use
- Enter total rent roll.
- Enter top-1 tenant share %.
- Enter top-3 share %.
- Enter top-5 share %.
- Enter base cap rate.
- Read adjusted cap rate and value impact.
Frequently Asked Questions
HHI threshold?
HHI < 1500: diffuse (no concentration premium). 1500-2500: moderate concentration (+25-50 bps cap rate). 2500+: concentrated (+50-150 bps). Single-tenant asset: +100-250 bps above multi-tenant comps.
Credit quality overlay?
Investment grade single tenant (NNN) often trades at same or tighter cap rate than multi-tenant. Non-IG single tenant trades wide. Credit quality and concentration interact — don't penalize IG concentration the same as non-IG.
Mitigation?
Diversify tenant roster at renewal (turn large blocks into multiple smaller leases). Require personal guarantees on concentrated tenants. Credit tenant lease (CTL) structure for single-tenant financing.
What documentation matters here?
Written leases, move-in/move-out inspections with photographs, ledger entries showing every payment and charge, served notices with proof of service, and contemporaneous emails or texts. Courts weigh written evidence heavily; informal understandings rarely stand. Institutional operators run a monthly file audit to catch gaps before they matter. Good paper trails recover most of what's owed.
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