How to Calculate Commercial WALT

The Weighted Average Lease Term (WALT) is a critical metric in commercial real estate that measures the average remaining lease duration, weighted by the rental income each lease generates. This metric helps investors and property managers assess the income stability and tenant turnover risk of a property.

Components of WALT Calculation

To calculate WALT, you need the following components:

• Lease Term: The remaining duration of each tenant’s lease.
• Annual Rent: The annual rental income generated by each lease.

Step-by-Step Calculation

Here’s a step-by-step guide to calculate WALT:

1. Collect Lease Information:

• Gather the remaining lease term and annual rent for each tenant.

1. Calculate the Weighted Lease Term for Each Lease:

• Multiply the remaining lease term by the annual rent for each lease.

1. Sum the Weighted Lease Terms:

• Add up all the weighted lease terms calculated in the previous step.

1. Calculate the Total Annual Rent:

• Sum the annual rent for all tenants.

1. Calculate WALT:

• Divide the total weighted lease term by the total annual rent.

Example Calculation

Let’s consider a property with three leases:

• Lease A: Remaining term = 20 months, Annual rent = $30,000
• Lease B: Remaining term = 32 months, Annual rent = $35,000
• Lease C: Remaining term = 38 months, Annual rent = $39,000

Step-by-Step Calculation:

1. Weighted Lease Term for Each Lease:

• Lease A: $$ 20 text{ months} times $30,000 = 600,000 $$
• Lease B: $$ 32 text{ months} times $35,000 = 1,120,000 $$
• Lease C: $$ 38 text{ months} times $39,000 = 1,482,000 $$

1. Sum of Weighted Lease Terms:

• $$ 600,000 + 1,120,000 + 1,482,000 = 3,202,000 $$

1. Total Annual Rent:

• $$ 30,000 + 35,000 + 39,000 = 104,000 $$

1. Calculate WALT:

• $$ text{WALT} = frac{3,202,000}{104,000} = 30.8 text{ months} $$

In this example, the WALT is 30.8 months, indicating that, on average, the leases will generate income for approximately 30.8 more months before they expire.

Using Excel for WALT Calculation

To calculate WALT in Excel:

1. List all tenants in one column.
2. Enter the square footage or annual rent of their leased space in the next column.
3. Enter the corresponding lease term for each tenant in another column.
4. Use the SUMPRODUCT() function to multiply each lease term by its annual rent.
5. Divide the result from the SUMPRODUCT function by the sum of all the annual rents to find the WALT.

Conclusion

Calculating WALT is essential for understanding the financial health and stability of a commercial property. It provides a clear picture of how long current leases will continue to generate income, helping in risk assessment and strategic planning for lease renewals or tenant acquisitions. By following the steps outlined above, you can accurately compute WALT and leverage this metric for better investment decisions.

Sources:

• [1] [2] [3]

Citations:
[1] https://crewisdoms.com/walt-in-cre/
[2] https://veedupropertymanagement.com/how-to-calculate-weighted-average-lease-term/
[3] https://www.adventuresincre.com/glossary/weighted-average-lease-term/
[4] https://www.adventuresincre.com/glossary/wault/
[5] https://www.youtube.com/watch?v=PNmGGploEGM