Key Takeaways
- Tenant concentration above 25% of income creates disproportionate risk — diversify tenants and industries.
- Stagger lease expirations so no more than 20-25% of income rolls in any single year.
- Interest rate risk affects CRE through both borrowing costs and cap rate expansion — fix rates and maintain adequate debt yield.
- Environmental risk requires Phase I ESA before every acquisition and environmental insurance for contamination history.
- Market risk is mitigated through geographic and property type diversification.
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Test Your Knowledge
1.What is the recommended maximum tenant concentration for a single CRE tenant?
2.What is the best practice for lease expiration scheduling?
3.What is the primary purpose of a Phase I ESA in CRE transactions?