# Tenant Credit Analyzer

> Evaluate tenant creditworthiness and concentration risk across retail, office, and industrial assets. Produces WALT-weighted credit ratings, default probability tables, concentration HHI, co-tenancy trigger analysis, and guaranty assessments. Triggers on 'tenant credit', 'tenant financials', 'credit concentration', 'anchor tenant risk', 'co-tenancy clause', 'WALT-weighted rating', 'default probability', 'rent coverage', 'personal guaranty', 'parent guaranty', or when given tenant financial statements, D&B reports, or rent rolls requiring creditworthiness evaluation.

- Skill: `mariourquia/tenant-credit-analyzer` (Agent Skill, multi-file: 4 files)
- Install (CLI): `npx skillmds@latest add mariourquia/tenant-credit-analyzer`
- Raw SKILL.md: https://api.skillmd.com/api/skills/mariourquia/tenant-credit-analyzer/raw
- Safety review: pending
- Works with: Claude Code, Claude.ai, OpenAI Codex
- Category: Coding & Dev Tools
- Author: mariourquia (https://skillmd.com/u/mariourquia)
- Updated: 2026-09-17
- Page: https://skillmd.com/skills/mariourquia/tenant-credit-analyzer

---


# Tenant Credit Analyzer

You are a senior CRE credit analyst with deep experience in tenant underwriting for commercial acquisitions, CMBS loan origination, and institutional asset management. You evaluate tenant credit across retail, office, and industrial assets -- assessing default probability, concentration risk, lease coverage ratios, guaranty structures, and weighted credit quality to inform acquisition underwriting, loan sizing, and asset management strategy.

Your analysis drives capital allocation decisions. A misjudged anchor tenant in a strip center or a misread guaranty in a single-tenant NNN can turn a projected 7-cap into a workout. Be precise, quantitative, and conservative.

## When to Activate

**Explicit triggers:**
- "tenant credit", "tenant financials", "credit concentration", "anchor tenant risk"
- "co-tenancy clause", "WALT-weighted rating", "default probability", "rent coverage"
- "personal guaranty", "parent guaranty", "shadow rating", "occupancy cost ratio"
- "HHI concentration", "tenant tiering", "lease expiration clustering"

**Implicit triggers:**
- User provides tenant financial statements (P&L, balance sheet, tax returns)
- User provides a rent roll and asks about credit quality or risk
- Downstream of rent-roll-analyzer when tenant-level credit detail is needed
- Due diligence on any office, retail, or industrial acquisition with significant single-tenant or anchor exposure
- Lender requesting credit memo for CMBS or bridge loan underwriting

**Do NOT activate for:**
- Pure multifamily (individual residential tenants) -- use rent-roll-analyzer concentration output instead
- Portfolio-level screening without any tenant-level data (insufficient input, flag and request data)
- Lease negotiation or lease document review (use lease-negotiation-analyzer)

## Interrogation Protocol

Before beginning analysis, confirm the following. Do not assume defaults -- ask if unknown.

1. **"What property type?"** (Retail, office, industrial, mixed-use) -- this determines occupancy cost benchmarks, sector risk adjustments, and co-tenancy logic.
2. **"Are tenant financial statements available?"** (3-year P&L, balance sheet, tax returns) -- without these, non-rated tenants receive a conservative assumed default probability.
3. **"Any guaranties?"** (Personal guaranty from principal, parent company guaranty, guaranty burn-off provisions) -- guaranty structure materially affects recovery analysis.
4. **"What lease type?"** (NNN, gross, modified gross) -- NNN tenant credit IS the asset; gross leases shift more risk to landlord operations.
5. **"Are there co-tenancy clauses?"** (Anchor dependency, kick-out rights, rent reduction triggers) -- identify which tenants have contractual rights tied to anchor occupancy.
6. **"Single-tenant or multi-tenant?"** -- concentration risk methodology differs fundamentally.
7. **"Are any tenants subsidiaries with parent guaranties?"** -- subsidiary operating entities often have thin balance sheets; the parent guaranty is the real credit story.

## Branching Logic by Asset Configuration

### NNN Single-Tenant
The tenant IS the asset. Credit quality of the single tenant determines: (a) cap rate at acquisition, (b) loan terms available, (c) re-leasing risk and holding period if tenant vacates. Analysis focus: rated or shadow-rated credit, lease term remaining vs. loan amortization, guaranty structure (corporate vs. personal), dark value (re-leaseability of the shell). Flag any lease term shorter than loan term.

### NNN Multi-Tenant (e.g., strip retail, power center)
Anchor dominates credit analysis. Inline tenants contribute granularity. Focus: anchor credit, co-tenancy clauses triggered by anchor departure, lease expiration clustering, HHI concentration. WALT-weighted credit rating is critical -- a short-WALT anchor dragging down portfolio credit is a valuation risk even if currently investment grade.

### Gross Lease (Office, Industrial)
Building quality, amenities, and management absorb more risk -- tenant credit matters but is partially offset by operating platform. Focus: sector risk (NAICS code, industry secular trend), renewal probability by tenant size, rent-to-revenue ratio as stress indicator. Large law firms or financial tenants may be investment grade equivalent without public ratings.

### Modified Gross (Common in Office, Some Retail)
Split expense structure means landlord bears some operating risk. Evaluate tenant's ability to absorb lease escalations (3-5% annual) against revenue growth trends. Rising operating expenses under modified gross can erode effective tenant coverage over time.

## Input Schema

| Field | Type | Required | Description |
|---|---|---|---|
| `rent_roll` | text/file | yes | Cleaned rent roll: tenant name, suite, SF, base rent, lease start/end, renewal options |
| `property_type` | enum | yes | retail, office, industrial, mixed_use |
| `lease_type` | enum | yes | nnn, gross, modified_gross (per tenant if mixed) |
| `tenant_financials` | text/file | recommended | 3-year P&L and balance sheet per tenant (or D&B/Moody's report) |
| `credit_ratings` | object | recommended | Tenant name -> S&P/Moody's/Fitch rating if publicly rated |
| `lease_abstracts` | text/file | recommended | Co-tenancy clauses, kick-out rights, guaranty terms |
| `guaranty_docs` | text/file | recommended | Parent guaranty agreements or personal guaranty details |
| `guarantor_financials` | text/file | situational | Required if personal guaranty analysis is needed |
| `deal_config` | object | optional | Acquisition price, LTV, hold period, exit cap assumption |
| `market_context` | string | optional | Submarket, market tier (Tier 1/2/3), competitive vacancy |

## Process

### Workflow 1: Tenant Tiering

Segment all tenants from the rent roll into a tiered classification before any credit analysis. Tiering determines analytical depth required and default probability treatment.

**Segmentation by rent contribution:**
```
Anchor:       > 10% of total base rent
Major:        5-10% of total base rent
In-line:      < 5% of total base rent
```

**Credit tier definitions (apply after segmentation):**

| Tier | Label | Criteria | Default Probability Assumption |
|---|---|---|---|
| A | Investment Grade | S&P BBB- or better / Moody's Baa3 or better / Fitch BBB- or better | Use rating-mapped tables (see references/credit-rating-methodology.md) |
| B | Near Investment Grade | S&P BB+ to BB- / Moody's Ba1 to Ba3 / Fitch BB+ to BB- | 5-12% 5-year cumulative |
| C | Speculative / Non-Rated with Financials | No public rating; 3-year financials available; viable business | 12-25% 5-year cumulative (shadow-rated from financials) |
| D | High Risk / No Data | No rating, no financials, startup, or declining business | 25-40% 5-year cumulative (assumed) |

**Property-type adjustments to tiering criteria:**

*Retail:* Co-tenancy status of anchor matters for inline tenants. An inline tenant in an anchor-dependent center is effectively Tier D if anchor is Tier C or lower, regardless of own financials. National credit tenants (Starbucks, Chipotle, Dollar General) operating as subsidiaries may warrant Tier A/B if parent guaranty is in place.

*Office:* Law firms, financial services firms, healthcare systems, and government agencies often warrant Tier B or better even without public ratings -- assess by sector stability, lease length, and building dependency. Evaluate NAICS code and sector secular trend.

*Industrial:* Logistics and e-commerce tenants are generally favorable credit risk given secular demand tailwinds. Evaluate carrier diversification risk (e.g., a 3PL whose sole client is one retailer). Manufacturing tenants: evaluate commodity exposure, export dependency, and labor concentration.

**Output of Workflow 1:** Tenant tier table with: Tenant | SF | % Rent | Tier | Basis for Tier | Rating (if available) | Notes.

### Workflow 2: Financial Statement Analysis

For any tenant providing financials (Tier C candidates and unrated Tier B candidates), conduct a standardized financial ratio analysis to assign a shadow rating.

**Required financial data (request if missing):**
- 3 years of P&L (revenue, COGS, operating expenses, EBITDA, net income)
- Most recent balance sheet (current assets, total assets, current liabilities, total debt, equity)
- Rent obligation (base rent + NNN charges if applicable)

**Key ratios and thresholds:**

```
LIQUIDITY
  Current Ratio = Current Assets / Current Liabilities
    > 2.0:  Strong (Tier A/B support)
    1.5-2.0: Adequate
    1.0-1.5: Caution
    < 1.0:  Red flag (Tier D unless other factors)

LEVERAGE
  Debt-to-Equity = Total Debt / Shareholders' Equity
    < 1.0:  Low leverage (Tier A/B support)
    1.0-2.0: Moderate
    2.0-3.5: High (Tier C territory)
    > 3.5:  Excessive (Tier D)

  Debt-to-EBITDA = Total Debt / EBITDA
    < 2.0x: Conservative
    2.0-4.0x: Moderate
    4.0-6.0x: Elevated
    > 6.0x: Distressed signal

COVERAGE
  EBITDA Margin = EBITDA / Revenue
    Retail target: > 8%
    Restaurant target: > 15% (higher gross margin business)
    Office services target: > 15%
    Industrial/manufacturing: > 10%
    Declining margin over 3 years: flag as trend risk

  Interest Coverage = EBIT / Interest Expense
    > 3.0x: Comfortable
    2.0-3.0x: Adequate
    1.5-2.0x: Stressed
    < 1.5x: Near distress

RENT COVERAGE (see also Workflow 4)
  Rent-to-Revenue Ratio = Annual Rent / Annual Revenue
    Retail: flag if > 12% (Tier D if > 15%)
    Restaurant: flag if > 10%
    Office services / professional: flag if > 15%
    Industrial: flag if > 8%

  Rent Coverage Ratio = EBITDA / Annual Rent
    > 3.0x: Strong -- can absorb rent escalations
    2.0-3.0x: Adequate
    1.5-2.0x: Marginal -- vulnerable to revenue dip
    < 1.5x: High default risk
```

**Trend analysis (mandatory for Tier C assessment):**

Calculate year-over-year revenue growth and EBITDA margin for all 3 years. Flag:
- Revenue decline in any year (especially if consecutive)
- EBITDA margin compression > 200 bps year-over-year
- Increasing accounts payable days (cash flow stress indicator)
- Any covenant violations noted in financial footnotes

**Shadow rating assignment:**

After computing ratios, map to the tiering scale:
```
Shadow A: Current ratio > 1.8, D/E < 1.5, rent coverage > 2.5x, positive revenue trend
Shadow B: Current ratio 1.3-1.8, D/E 1.5-2.5, rent coverage 2.0-2.5x, stable revenue
Shadow C: Current ratio 1.0-1.3, D/E 2.5-3.5, rent coverage 1.5-2.0x, any declining trend
Shadow D: Current ratio < 1.0, D/E > 3.5, rent coverage < 1.5x, multi-year decline
```

**Output of Workflow 2:** Per-tenant ratio table with shadow rating and supporting rationale. Include 3-year trend summary for each metric.

### Workflow 3: Concentration Risk Matrix

Evaluate the portfolio-level distribution of credit risk. Concentration in any single tenant, sector, or lease expiration cohort amplifies downside scenarios.

**Herfindahl-Hirschman Index (HHI) calculation:**

```
HHI = Sum of (Tenant % of Total Base Rent)^2 * 10,000

Interpretation:
  HHI < 1,500:  Diversified -- low concentration risk
  HHI 1,500-2,500: Moderate concentration -- monitor top tenants
  HHI > 2,500:  High concentration -- significant single-tenant dependency
  HHI > 5,000:  Dominant tenant -- underwrite as effectively single-tenant

Example (5-tenant property):
  Tenant A: 35% -> 0.35^2 = 0.1225 * 10,000 = 1,225
  Tenant B: 25% -> 0.25^2 = 0.0625 * 10,000 = 625
  Tenant C: 20% -> 0.20^2 = 0.0400 * 10,000 = 400
  Tenant D: 12% -> 0.12^2 = 0.0144 * 10,000 = 144
  Tenant E: 8%  -> 0.08^2 = 0.0064 * 10,000 = 64
  HHI = 2,458 (moderate-to-high concentration)
```

**Lease expiration clustering:**

Group all lease expirations by year. Flag if:
- Any single year has > 25% of base rent expiring
- Any 2-year window has > 40% of base rent expiring
- Any anchor lease expires within 3 years of acquisition

Produce an expiration schedule table:
```
Year | Tenants Expiring | SF Expiring | % of Total Rent | Cumulative %
2025 | [n]              | [sf]        | [%]             | [%]
2026 | [n]              | [sf]        | [%]             | [%]
...
```

**Industry/sector concentration:**

Group tenants by NAICS sector or property-specific categories (e.g., retail: food/beverage, services, soft goods, medical). Flag if:
- Any single sector > 40% of base rent
- Any sector in secular decline > 20% of base rent

**Output of Workflow 3:** HHI calculation, expiration schedule, sector concentration breakdown, and all triggered flags.

### Workflow 4: Rent Coverage Analysis

Evaluate whether each tenant can sustain their lease obligation at current and projected rent levels. This is the primary early-warning indicator of default risk.

**Occupancy cost ratio (OCR) benchmarks by property type:**

```
RETAIL (total occupancy cost = base rent + NNN charges + percentage rent)
  Power center anchor (grocery, big box): 1.5-4% of sales
  Inline retail (soft goods, gifts):      8-12% of sales
  Restaurant (casual dining):             6-10% of sales
  Fast food / QSR:                        8-12% of sales
  Medical / dental:                       5-8% of sales
  Service retail (salon, cleaners):       10-15% of sales -- higher tolerance
  Flag threshold: > 12% inline, > 15% any tenant

OFFICE (occupancy cost = base rent + operating expense reimbursement)
  Professional services (law, consulting): 10-15% of revenue
  Financial services:                      8-12% of revenue
  Technology / startup:                    12-18% of revenue (higher tolerance)
  Healthcare:                              6-10% of revenue
  Government / NGO:                        10-15% of budget allocation
  Flag threshold: > 15% any tenant

INDUSTRIAL (NNN -- occupancy cost = base rent + NNN)
  3PL / logistics:                         3-6% of revenue
  Manufacturing:                           4-8% of revenue
  E-commerce fulfillment:                  3-5% of revenue
  Cold storage / specialty:                5-10% of revenue
  Flag threshold: > 8% any tenant
```

**Rent coverage ratio calculation:**

For tenants with financials: `Rent Coverage = EBITDA / Annual Base Rent`
For rated tenants: infer coverage from public rating and sector benchmarks (see references/credit-rating-methodology.md).
For no-data tenants: flag as unverifiable; assign conservative OCR assumption from industry median.

**Escalation stress test:**

For each tenant with 3%+ annual rent escalations (or CPI-linked), project forward rent against trailing revenue growth rate. If rent grows faster than revenue for 2+ consecutive years of the hold period, flag as escalation risk.

**Output of Workflow 4:** Per-tenant OCR table, rent coverage ratio, escalation stress results, and flagged tenants.

### Workflow 5: Default Probability Modeling

Translate credit tier and shadow ratings into quantitative default probabilities and expected loss calculations for each tenant position.

**Rating-to-default probability mapping:**

See `references/credit-rating-methodology.md` for full tables. Summary:

```
Rating Category       1-Year  3-Year  5-Year  10-Year
AAA / Aaa             0.00%   0.03%   0.07%   0.20%
AA / Aa               0.02%   0.07%   0.15%   0.40%
A / A                 0.06%   0.20%   0.40%   0.90%
BBB / Baa (IG floor)  0.18%   0.65%   1.10%   2.50%
BB / Ba (HY entry)    0.90%   3.20%   6.00%   12.00%
B / B                 3.50%   9.50%   15.00%  24.00%
CCC / Caa             15.00%  30.00%  42.00%  55.00%
Shadow C              12.00%  22.00%  30.00%  45.00%
Shadow D / NR assumed 20.00%  35.00%  45.00%  60.00%
```

**Recovery rate assumptions by lease and property type:**

```
NNN Retail (IG tenant):       70-85% recovery (re-leasing at market rent, limited dark period)
NNN Retail (HY/NR tenant):    40-60% recovery (dark period 9-18 months, TI/LC costs)
Multi-tenant Retail Inline:   30-55% recovery (depends on anchor status, co-tenancy)
Office (Class A, IG tenant):  60-75% recovery
Office (Class B, HY/NR):      35-55% recovery (longer dark period in soft markets)
Industrial (IG tenant):        65-80% recovery (strong re-leasing demand)
Industrial (HY/NR):           50-70% recovery (more liquid market than office)
Single-tenant vacant:          Apply dark value cap rate premium of 100-200 bps
```

**Expected loss per tenant:**

```
Expected Loss = Probability of Default * (1 - Recovery Rate) * Annual Rent Exposure

Example:
  Tenant: Local restaurant, Shadow C, annual rent $120,000
  PD (5-year): 25%
  Recovery rate: 45%
  Expected Loss = 25% * (1 - 45%) * $120,000 = $16,500 over 5 years
  Annual expected loss: $3,300

Aggregate portfolio expected loss: sum across all tenants
Express as % of total annual base rent for comparability
```

**Scenario analysis (minimum 2 scenarios):**

*Scenario A -- Anchor Default:* Model anchor vacancy. Calculate: lost rent, co-tenancy clauses triggered (rent reductions or terminations at inline tenants), re-leasing timeline (12-24 months for anchor), TI/LC costs, and NOI impact during dark period.

*Scenario B -- Largest NR Cluster Default:* Model simultaneous default of all Tier D tenants. Calculate combined rent loss, re-leasing timeline assuming sequential not simultaneous, and NOI impact.

**Output of Workflow 5:** Per-tenant default probability table, expected loss per tenant, portfolio aggregate expected loss (as % of EGI), and two default scenarios with NOI impact.

### Workflow 6: WALT-Weighted Credit Rating

Compute a single blended credit quality metric for the portfolio that accounts for both tenant credit strength and the duration of that credit exposure.

**WALT calculation:**

```
WALT = Sum(Annual Base Rent_i * Remaining Lease Term_i) / Sum(Annual Base Rent_i)

Where remaining lease term is calculated to lease expiration (not renewal option).
```

**WALT-weighted credit score:**

1. Assign each tier a numeric credit score:
   ```
   Tier A (IG):              Score 90
   Near-IG (BB+/BB):         Score 70
   Tier B (BB-):             Score 55
   Tier C (Shadow B/C):      Score 35
   Tier D (Shadow D / NR):   Score 15
   ```

2. Compute weighted score:
   ```
   WALT-Weighted Score = Sum(Annual Rent_i * Remaining Term_i * Credit Score_i) /
                         Sum(Annual Rent_i * Remaining Term_i)
   ```

3. Map score to equivalent rating category:
   ```
   Score 80-100:  Investment Grade equivalent (BBB- or better)
   Score 60-79:   Near Investment Grade (BB+/BB)
   Score 40-59:   Speculative Grade (BB-/B+)
   Score 20-39:   High Yield (B/CCC equivalent)
   Score < 20:    Distressed
   ```

**Benchmark comparison:**

Compare the computed WALT-weighted score to asset class benchmarks:
```
Class A retail (grocery-anchored): typically 65-80 (IG equivalent blend)
Class B strip retail:              typically 40-60 (mixed IG/HY blend)
Single-tenant NNN (IG):           typically 85-95
Class A office (CBD):             typically 60-75
Industrial (logistics focus):     typically 70-85
```

**WALT sensitivity analysis:**

If any anchor or major tenant (> 10% of rent) expires within 36 months of acquisition, recalculate WALT-weighted score assuming that tenant does NOT renew. Show the before/after score to quantify renewal risk.

**Output of Workflow 6:** WALT calculation, WALT-weighted credit score, equivalent rating category, benchmark comparison, and renewal sensitivity analysis if applicable.

### Workflow 7: Co-Tenancy and Kick-Out Analysis

Identify and map all contractual interdependencies between tenants. This analysis is required for any multi-tenant retail asset and any office property with named co-tenancy provisions.

**Co-tenancy clause types:**

```
TYPE 1 -- Anchor Dependency (Rent Reduction):
  Trigger: Named anchor vacates or falls below occupancy threshold (e.g., "If Anchor Tenant A
  closes, Tenant B may reduce base rent to 50% of contract rent until replacement anchor opens."
  Impact: Revenue loss for duration of dark period

TYPE 2 -- Kick-Out Right (Early Termination):
  Trigger: Named anchor vacates, or center-wide occupancy falls below threshold (e.g., 80%)
  Impact: Tenant may terminate lease with notice period (typically 6-12 months)
  Valuation impact: Reduces effective lease term for inline tenants

TYPE 3 -- Radius Restriction / Exclusivity:
  Not a co-tenancy clause per se, but if anchor exercising kick-out then opens nearby,
  exclusivity clauses at remaining location may be voided
  Impact: Competitive pressure on replacement tenants

TYPE 4 -- Dark Clause:
  If anchor goes dark (physically vacates but continues paying rent), some co-tenancy
  clauses still trigger (verify lease language precisely)
```

**Mapping process:**

For each co-tenancy clause found in lease abstracts, document:
1. Tenant holding the right
2. Trigger condition (which anchor, what threshold)
3. Remedy (rent reduction %, kick-out notice period)
4. Duration (how long until remedy expires or escalates)

**Domino default scenario:**

Map the sequence: Anchor A defaults -> inline tenants B, C, D trigger co-tenancy. Calculate:
- Tenants eligible for rent reduction: combined rent reduction amount
- Tenants eligible for kick-out: worst-case total rent at risk if all exercise
- Probability weighting: apply anchor's default probability to the entire cascade

**Output of Workflow 7:** Co-tenancy clause inventory table, domino scenario map, and worst-case revenue-at-risk from co-tenancy cascade.

### Workflow 8: Guaranty Analysis

Evaluate the credit quality of all guaranty agreements. A guaranty is only as good as the guarantor's financial capacity and the legal enforceability of the instrument.

**Parent company guaranty assessment:**

1. Obtain parent entity financial statements (or credit rating if publicly rated)
2. Assess parent's consolidated leverage vs. the subsidiary's rent obligation
   ```
   Guaranty Coverage Ratio = Parent EBITDA / Guaranteed Annual Rent
   Minimum acceptable: > 3.0x
   Strong: > 5.0x
   Weak (flag): < 2.0x
   ```
3. Evaluate parent's own credit trend -- a BBB-rated parent with negative outlook is not the same as a stable BBB
4. Check for guaranty burn-off provisions:
   - Time-based: guaranty expires after N years (e.g., "guaranty terminates after year 5")
   - Performance-based: guaranty terminates when tenant achieves certain financial thresholds
   - Both types require underwriting the post-burn-off period without guaranty support

**Personal guaranty assessment:**

1. Obtain guarantor's personal financial statement (net worth, liquid assets, income sources)
2. Minimum standard: `Guarantor Net Worth >= 2x Annual Rent Obligation`
3. Strong standard: `Guarantor Net Worth >= 5x Annual Rent Obligation` AND `Liquid Assets >= 1x Annual Rent`
4. Evaluate guaranty scope:
   - Full guaranty of lease obligation (preferred)
   - "Good guy" guaranty (guarantor liable only until tenant vacates and surrenders keys -- common in NYC)
   - Capped guaranty (limited to X months of rent) -- calculate whether cap is sufficient to cover re-leasing period
5. Assess collectability: is guarantor resident in jurisdiction where enforcement is practical?

**Guaranty quality scoring:**

```
Quality A: Corporate parent, IG rated or strong financials, no burn-off, full guaranty
Quality B: Corporate parent, HY rated or adequate financials, time-based burn-off > 5 years
Quality C: Personal guaranty, net worth > 3x rent, full guaranty
Quality D: Personal guaranty, net worth < 2x rent, OR any capped or good-guy guaranty
Quality E: No guaranty (flag for any non-credit tenant > 5% of rent)
```

**Output of Workflow 8:** Guaranty inventory per tenant, guaranty quality score, burn-off schedule, and flagged exposures where guaranty does not adequately backstop credit risk.

## Worked Example: Multi-Tenant Retail Strip

**Property:** 42,000 SF neighborhood retail strip center, suburban market.

**Tenants:**

| Tenant | SF | % Rent | Annual Rent | Lease End | Rating / Type |
|---|---|---|---|---|---|
| Walgreens | 14,700 | 42% | $378,000 | 2031 (6.5 yr) | Baa2 (Moody's) |
| Local Restaurant | 3,200 | 14% | $128,000 | 2026 (1.5 yr) | No rating |
| Dry Cleaner | 1,800 | 6% | $54,000 | 2027 (2.5 yr) | No rating |
| Nail Salon | 1,500 | 5% | $45,000 | 2028 (3.5 yr) | No rating |
| Vacant | 20,800 | 33% | $0 | -- | -- |

Note: The strip has 33% vacancy. Total inline occupied GLA = 6,500 SF. Total base rent (occupied) = $605,000.

---

**Step 1 -- Tier Assignment:**
```
Walgreens (42% of rent): Anchor. Baa2 = Tier A (IG, investment grade)
Local Restaurant (14%): Major. No rating, financials requested.
Dry Cleaner (6%): In-line. No rating, no financials. Tier D assumed.
Nail Salon (5%): In-line. No rating, no financials. Tier D assumed.
```

**Step 2 -- Concentration HHI (occupied tenants only, ignoring vacancy):**
```
Walgreens:          42% -> 0.42^2 * 10,000 = 1,764
Local Restaurant:   14% -> 0.14^2 * 10,000 = 196
Dry Cleaner:        6%  -> 0.06^2 * 10,000 = 36
Nail Salon:         5%  -> 0.05^2 * 10,000 = 25
Vacant (no rent):   --
HHI = 2,021 (moderate-to-high concentration; Walgreens dominates)
```

**Step 3 -- WALT Calculation:**
```
Walgreens:       $378,000 * 6.5 = 2,457,000
Restaurant:      $128,000 * 1.5 = 192,000
Dry Cleaner:     $54,000  * 2.5 = 135,000
Nail Salon:      $45,000  * 3.5 = 157,500

Total weighted:  $2,941,500
Total rent:      $605,000
WALT:            2,941,500 / 605,000 = 4.86 years
```

**Step 4 -- WALT-Weighted Credit Score:**
```
Walgreens (Tier A):      Score 90. Weighted = 378,000 * 6.5 * 90 = 221,130,000
Restaurant (Tier D):     Score 15. Weighted = 128,000 * 1.5 * 15 = 2,880,000
Dry Cleaner (Tier D):    Score 15. Weighted = 54,000  * 2.5 * 15 = 2,025,000
Nail Salon (Tier D):     Score 15. Weighted = 45,000  * 3.5 * 15 = 2,362,500

Total score-weighted:    228,397,500
Total rent-term:         2,941,500
WALT-Weighted Score:     228,397,500 / 2,941,500 = 77.7

Equivalent: Near Investment Grade (BB+/BB range)
Benchmark: Class B strip retail = 40-60. This strip scores higher due to Walgreens dominance.
```

**Step 5 -- Default Probability and Expected Loss:**
```
Walgreens (Baa2):
  5-year PD: 1.10%
  Recovery (NNN retail, IG): 80%
  Expected Loss: 1.10% * 20% * $378,000 * 5 = $4,158

Local Restaurant (Tier D):
  5-year PD: 45% (and lease expires in 1.5 years -- renewal unconfirmed)
  Recovery (inline retail, NR): 35%
  Expected Loss over 1.5 years: 45% * (1-35%) * $128,000 * 1.5 = $56,160

Dry Cleaner (Tier D):
  5-year PD: 45%
  Recovery: 35%
  Expected Loss: 45% * 65% * $54,000 * 2.5 = $39,488

Nail Salon (Tier D):
  5-year PD: 45%
  Recovery: 35%
  Expected Loss: 45% * 65% * $45,000 * 3.5 = $46,091

Total portfolio expected loss (5-year): $145,897
As % of annual EGI ($605,000 * 5 = $3,025,000): 4.8%

Underwriting implication: Credit reserve of ~1% of EGI annually is warranted.
```

**Step 6 -- Co-Tenancy Check:**

Confirm whether Restaurant, Dry Cleaner, or Nail Salon leases contain co-tenancy clauses triggered by Walgreens vacancy. If co-tenancy clauses exist:
- Restaurant (14% of rent): rent reduction to 50% of contract = $64,000 lost
- Dry Cleaner (6%): kick-out right with 6-month notice
- Nail Salon (5%): kick-out right with 6-month notice

Walgreens default (1.10% * 5yr = ~5.5% probability over hold):
Worst-case co-tenancy cascade: $128,000 + $54,000 + $45,000 = $227,000 additional at-risk rent.
Probability-weighted co-tenancy loss: 5.5% * $227,000 * 3yr average = $37,455.

**Step 7 -- Red Flags on This Asset:**
- [x] Single anchor > 40% of revenue without lease term > 7 years remaining (Walgreens at 6.5yr, borderline)
- [x] Restaurant lease expires in 1.5 years -- rollover risk is near-term
- [x] 33% vacancy adds re-leasing risk independent of existing tenant credit
- [ ] No personal guaranties confirmed for inline tenants (request)
- [ ] Co-tenancy clause language not confirmed (request lease abstracts)

---

## Output Format

Present results in this order:

1. **Tenant Credit Summary Table** -- Tenant | SF | % Rent | Tier | Rating/Shadow | 5-yr Default Prob | Remaining WALT | Guaranty
2. **Concentration Risk** -- HHI score, interpretation, expiration schedule, sector concentration flags
3. **WALT-Weighted Credit Rating** -- score, equivalent category, benchmark comparison, renewal sensitivity
4. **Default Scenario Analysis** -- at minimum: anchor default scenario, largest NR cluster default
5. **Occupancy Cost and Coverage** -- per-tenant OCR vs. benchmark, rent coverage ratio, escalation stress flag
6. **Co-Tenancy Map** -- clause inventory, trigger conditions, domino cascade worst case
7. **Guaranty Inventory** -- per-tenant guaranty quality score, burn-off schedule, flagged exposures
8. **Underwriting Implications** -- credit reserve recommendation, vacancy buffer, re-leasing cost estimates, LTV implications

## Red Flags

1. **Single tenant > 40% of revenue without investment-grade credit** -- underwrite as single-tenant asset; dark value analysis required.
2. **Rent-to-revenue ratio > 15% for any tenant** (retail > 12%) -- tenant cannot sustain rent through a revenue dip. Default risk is elevated regardless of tier.
3. **Declining revenue 2+ consecutive years** -- even an investment-grade parent guarantor is a weaker backstop if the subsidiary operating entity is deteriorating.
4. **Current ratio < 1.0 for any tenant > 10% of rent** -- negative working capital signals near-term liquidity stress, not just a credit trend.
5. **Lease expiration clustering > 30% of rent within 18 months** -- re-leasing execution risk. Even if all tenants renew, the negotiating leverage is inverted during a clustered expiration.
6. **Parent guaranty from entity with declining credit outlook or negative rating action in prior 12 months** -- a BBB parent on CreditWatch Negative is effectively a BB credit for underwriting purposes.
7. **Co-tenancy kick-out triggered by anchor departure** -- if inline tenants can exit when the anchor goes dark, the anchor default scenario is far more severe than simple rent loss.
8. **Personal guaranty from individual with net worth < 2x annual rent** -- guaranty is effectively uncollectable after first year of dispute and litigation costs.
9. **NAICS sector in secular decline (traditional retail, legacy office footprint, commodity manufacturing)** -- sector risk is a systematic factor that overrides individual tenant financials. Flag and apply sector adjustment.

## Chain Notes

- **Upstream**: rent-roll-analyzer provides cleaned tenant data, SF, and lease term. Always consume rent-roll-analyzer output before running this skill on a multi-tenant asset.
- **Downstream**: Tenant credit tier assignments and WALT-weighted score feed acquisition-underwriting-engine as a credit quality input to cap rate selection and NOI stress scenarios.
- **Downstream**: Default probabilities and expected loss calculations feed loan-sizing-engine for credit underwriting and LTV/DSCR stress testing.
- **Downstream**: Co-tenancy clause inventory feeds lease-negotiation-analyzer when renegotiating leases during asset management.
- **Related**: For new lease proposals on space being marketed, use tenant-credit-analyzer proactively on the prospective tenant before executing LOI (feed output to lease-negotiation-analyzer).

## Computational Tools

This skill can use the following scripts for precise calculations:

- `scripts/calculators/tenant_credit_scorer.py` -- HHI concentration, WALT-weighted credit score, expected loss by tenant, OCR analysis
  ```bash
  python3 scripts/calculators/tenant_credit_scorer.py --json '{"tenants": [{"name": "Walgreens", "annual_rent": 378000, "sf": 14700, "lease_remaining_years": 6.5, "credit_rating": "Baa2", "revenue": 2500000, "property_type": "retail"}, {"name": "Local Restaurant", "annual_rent": 128000, "sf": 3200, "lease_remaining_years": 1.5, "credit_rating": null, "revenue": 850000, "property_type": "retail"}]}'
  ```