Tenant Default Exposure Calculator

Single-tenant default on large commercial leases creates binary property risk.

Annual rent

Remaining lease months

Re-tenanting downtime

Market rent at re-lease

LC + TI cost

Total default exposure

$2,950,000

Downtime lost rent

$1,500,000

Market rent delta loss

$600,000

How the math works

Downtime = monthly × downtime. Market delta = (old − new) × remaining months. Total = both + LC/TI.

$125k × 12 = $1.5M downtime + $12.5k × 48 = $600k delta + $850k LC/TI = $2.95M exposure.

How to Use

Enter annual rent.
Enter remaining lease months.
Enter re-tenanting downtime months.
Enter market rent at re-lease.
Enter LC + TI cost.
Read total default exposure.

Frequently Asked Questions

What's tenant default exposure?

The total economic impact from a tenant ceasing rent payments, including: lost rent through remainder of lease (net of re-leasing capture), downtime to find replacement tenant, market rent delta if re-leased at different rate, LC (leasing commission), TI (tenant improvement allowance), legal costs to pursue guarantor if applicable. Commercial single-tenant: 20-40% of lease value. Multi-tenant 10%+ single tenant: 5-15% of total. Institutional underwriting requires default-exposure analysis.

Probability of tenant default?

Commercial tenant bankruptcy rate: 1-3% per year in healthy economy, 4-8% in recession. Sector dependencies: retail tenants (apparel, bookstores, movie theaters) historically 5-10%; medical office lowest 0.5-1.5%; industrial mid-range 2-4%. Credit ratings help: AA/A tenant bankruptcy rate <0.5%; unrated / private <$100M revenue: 3-8%. Always request tenant credit info before leasing; track ongoing via D&B.

How to mitigate?

Personal/parent guarantee from creditworthy guarantor. Security deposit (6-12 months rent for weak credit; 1-3 for investment grade). Letter of credit. Rent coverage ratio covenants (tenant maintains 1.25-1.5x EBITDA/rent). Early termination fees (tenant pays 6-12 months rent to walk). SNDA (subordination, non-disturbance) with lender. Different tenants call for different mitigation stacks; don't use one-size-fits-all.

What if tenant files bankruptcy?

Automatic stay halts collection. Tenant can assume, assume and assign (transfer to buyer of business), or reject the lease. If rejected, landlord gets unsecured claim for remaining rent. Recovery rates on unsecured claims: 3-15%. Institutional landlords typically write off 80-95% of remaining lease value. Strong lease terms (guaranty, security deposit) can help but often not enough. Workout vs litigation: workout preferred — contested cases drag 2-5 years.