Operating evidence and financing
What this package helps you examine
Office debt analysis must follow both the rent and the capital required to obtain it. A lease can increase future income while creating a near-term cash deficit through free rent, tenant improvements and commissions. Build a package that makes those obligations visible alongside current collections and the loan maturity calendar.
Distinguish occupancy from paying occupancy
Maintain separate dates for lease execution, access, tenant possession, rent commencement and expiration. Identify free-rent months, expansion rights, contractions and termination elections. Reconcile contractual income to collected rent rather than relying solely on accounting revenue. A leased floor with substantial unpaid landlord work is a different financing position from a paying tenant in accepted space.
Inventory every landlord commitment
Create a tenant-level schedule of improvements, commissions, allowances, base-building work and unpaid invoices. Mark whether each obligation is contracted, estimated or contingent, who must pay it, and what evidence permits reimbursement. Kilroy's accounting disclosure illustrates that tenant improvements and deferred leasing costs are distinct categories; the subject contracts and cash timing control the funding analysis.
Underwrite the rollover sequence
Connect each expiration to downtime, replacement rent, free rent and leasing capital. Show when the building loses income and when cash must leave, not only a stabilized average. If the strategy depends on conversion, treat legal approvals, physical feasibility and financing as separate unresolved steps. A potential alternative use is not committed refinance proceeds for an office loan.
Use the workbook
- Use Assumptions!D5 for Base (1) or Downside (2), and the labeled scenario input rows. Enter source data in Lease Schedule!D10:L12; preserve formula cells and an untouched workbook copy.
- Use the Lease Schedule to coordinate expiration, downtime, free rent and TI/commission funding. The modeled activity multiplier is a collection sensitivity, not a change to legal leased area or contractual capital obligations.
- Reconcile Operations to Summary. Apply the entered lender adjustment separately to the modeled cash flow. Sizing uses amortizing debt service, while first-year payments reflect the entered interest-only period.
- In Assumptions, replace illustrative value, LTV, DSCR, debt yield, rate, amortization and requested ceiling with the intended scenario. Review capacities in Debt and Funding. The smallest modeled capacity does not establish eligibility or approval.
- Closing equity includes the entered opening cash and restricted reserves. Additional operating cash need is measured after that opening cash, so do not add it twice. Inspect monthly cash and remaining principal at maturity.
- Read Review for model conventions and limitations. Save each scenario with its supporting evidence and date; actual lender definitions, legal rights and professional findings control the transaction.
Questions to prepare for a lender
Which occupied space is producing cash rent today?
Tenant-level commencement, abatement and collection schedule.
What landlord obligations remain unpaid?
Executed leases, work letters, contractor commitments and invoice ledger.
Are improvement funds available before the work is due?
Loan draw conditions, tenant acceptance milestones and interim cash evidence.
How much income expires before refinance?
Lease and option calendar aligned with maturity and marketing lead time.
Are renewal assumptions supported?
Written tenant communications, lease negotiations and a separate no-renewal case.
What does a slower lease-up require?
Monthly carry, improvement spending and accessible sponsor liquidity.
03 / Prepare
Build the evidence file
Use this as a preparation checklist. The lender determines the documents, definitions and review conditions for the actual transaction.
Cash flow and operations
- Dated rent roll with area, face rent, cash rent and lease dates.
- Complete leases, work letters, amendments and commencement certificates.
- Collection history, arrears, abatements and nonrecurring settlements.
- Monthly operating results with recovery income and landlord expenses reconciled.
- Tenant-level improvement, allowance and commission commitments.
- Leasing assumptions with downtime, free rent and scheduled cash payments.
Property and collateral
- Floor plans, rentable-area support and current legal occupancy evidence.
- Condition assessment covering building systems and deferred capital work.
- Environmental reports and any continuing monitoring requirements.
- Accessibility, life-safety and other scope identified by qualified professionals.
- Actual conversion studies if an alternate-use strategy is proposed.
- Contracts separating base-building obligations from tenant improvements.
Sponsor and execution
- Sponsor experience with office leasing, capital programs and management transitions.
- Borrower, ownership and guarantor documents requested for the proposed loan.
- Post-closing liquidity with already committed tenant capital deducted.
- Other maturity and guaranty obligations competing for sponsor resources.
- Leasing-broker and management agreements with fees and authority.
- Equity evidence for committed work plus the downside operating cash need.
Closing and funding
- Tenant confirmations and counsel-identified lease consent requirements.
- Funding sources tied to each improvement or commission payment date.
- Holdback conditions, inspection steps and expected reimbursement timing.
- Loan covenants and extension tests using the same cash-flow definition.
- Payoff, title, insurance and closing-cost support.
- Versioned open-item register for every material unresolved lease or work condition.
Watch for these assumptions
- Do not confuse straight-line rent with cash available for debt service.
- Renewal probabilities do not replace the cash needed if several tenants leave together.
- An allowance cap does not prove the complete work scope can be delivered for that amount.
- A commitment that reimburses completed work does not eliminate the owner's interim funding need.
- Lower first-year TI and leasing-commission spending caused by delayed occupancy is not a cost saving. Obligations scheduled after month 12 fall outside this forecast and require separate funding analysis.
Before you rely on the result
- Identify all signed landlord obligations before describing sponsor liquidity as available.
- Show a no-renewal branch through the next debt maturity.
- Confirm the actual funding sequence for work, acceptance and rent commencement.
Scope and limitations
- Educational analysis; not a financing offer, appraisal, legal opinion or program eligibility determination.
- Workbook figures and thresholds are illustrative editable assumptions, not current lender quotes or universal underwriting standards.
- Document requests depend on the lender, transaction, jurisdiction and property; address unresolved issues with the relevant qualified professional.
Sources and applicability
These references support the stated asset and risk context. The questions and document lists are preparation tools, not a statement that every lender requires or accepts the same package. Actual contracts, applicable rules and the chosen lender determine the transaction requirements. The cited source passage was rechecked in the retained official source file from same-day library research; direct web retrieval was restricted or incomplete during PDF preparation.
- Kilroy Realty — 2025 Form 10-KSignificant Accounting Policies: Tenant Improvements; Deferred Leasing Costs; related liquidity discussion of leasing capital · Checked 2026-10-21Issuer accounting context; actual owner contracts and accounting control.