Mark-to-Market
Adjusting in-place rents (or other lease economics) to current market levels when modeling income, usually as leases expire and renew or re-tenant.
Definition
Mark-to-market is the underwriting practice of bringing below- or above-market leases to today's market rents over a hold period. On the upside, it converts loss-to-lease into higher NOI as rolls happen; on the downside, it haircuts in-place income when leases are above market and likely to reset lower. Small bay investors use mark-to-market schedules by lease expiration because unit rolls are frequent and staggered across many tenants rather than one big box lease. A credible mark-to-market plan includes downtime, free rent, TI, and leasing commissions—not just the rent delta—so the NOI ramp is not overstated. Brokers and buyers often debate the market rent assumption more than the math itself.
Example
A rent roll shows 12 units averaging $13.00/SF with $3.00/SF of loss-to-lease versus a $16.00/SF market. The buyer models marking 4 units to market in year 1, 4 in year 2, and 4 in year 3, each with one month vacant and one month free rent. Stabilized NOI assumes all units at $16.00/SF after those rolls.
See Also
Related Terms
Related Articles
Occasional updates, worth reading.
New tools, technology, and occasional small bay and flex industrial industry updates.