Leasing Commissions (LC)

Leasing commissions are fees paid to brokers or leasing agents for securing tenants and executing leases and are a material component of leasing costs in underwriting. In CRE lending, LCs are typically capitalized as a leasing cost or amortized over the lease term, affecting both the initial capital budget and ongoing operating metrics. Underwriters include LCs in the leasing cost line of sources and uses and in cash flow models, since high commission rates or frequent turnover increase capital needs and reduce net operating income during lease-up and renewal periods.

Model leasing commissions per lease transaction in the pro forma, tying LCs to expected lease timing, tenant size, and market commission rates. Reflect whether the lender will allow capitalization of commissions into the project budget or require sponsor payment outside loan proceeds. Use LCs to build realistic leasing cost assumptions during lease-up and renewal forecasting, and stress test the impact of tenant churn on cumulative leasing costs. Transparent LC assumptions help lenders evaluate required holdbacks, replacement reserves, and the sponsor’s working capital requirements.

Leasing commissions materially impact upfront capital requirements and recurring costs associated with tenant turnover, directly influencing loan sizing and projected returns. High LCs reduce cash available for distributions and raise the breakeven occupancy level needed to cover debt service. Lenders scrutinize LC assumptions because underestimated commissions can create funding gaps or require additional equity, while well-documented commission structures improve underwriting credibility and reduce the likelihood of unforeseen capital calls during leasing cycles.