Mark-to-market rent is the exercise of restating a property's in-place lease rents at the rates those spaces would command if leased today. It reprices each contract lease to current market, exposing the gap between what tenants pay now and what the market supports. Asset managers use it to size embedded rent upside.
What Is Mark-to-Market Rent?
Mark-to-market rent is the process of valuing each in-place lease at the current market rate rather than its locked contract rate. It converts a rent roll of legacy contract rents into a market-rate view, so the analyst can see how far below or above market the property sits. The gap is the mark-to-market opportunity.
The concept borrows from finance, where marking to market means restating an asset at its current price rather than its historical cost. In commercial real estate the "price" is market rent, and the "asset" is each occupied lease. Because leases lock rates for three, five, or ten years, in-place rents drift away from prevailing market rents over time. Marking to market measures that drift.
Input | Definition |
Contract rent | The rate the sitting tenant currently pays under the lease |
Market rent | The rate the same space would achieve if leased today |
Mark-to-market gap | Market rent minus contract rent, per unit or across the property |
Mark-to-market percent | (Market rent minus contract rent) divided by contract rent |
A positive gap, where market sits above contract, is the same underpricing that a loss-to-lease analysis measures. A negative gap, where contract sits above market, mirrors a gain-to-lease position and signals downside on renewal.
Why Mark-to-Market Rent Matters
Mark-to-market rent matters because commercial property is valued on income, so the gap between contract and market rent is embedded value waiting to be captured. As leases expire and reset toward market, net operating income rises, and at a market cap rate that added income capitalizes into a higher asset value. The mark-to-market analysis quantifies that runway.
The operator-side risk is the market rent assumption. A mark-to-market view is only as credible as the market rents behind it, and per PropertyMetrics, building an apples-to-apples comparison requires surveying properties similar in location, finish, and amenities. An asset manager who marks rents to an aspirational number manufactures upside that will not survive contact with real renewals.
Example
A 100-unit multifamily property has average contract rent of $1,400 per unit and average market rent of $1,600 per unit. The mark-to-market gap is $200 per unit per month, a 14.3 percent premium over contract rent. Marked across all 100 units, the annual gap is $240,000 of potential rent not yet captured.
Component | Amount |
Contract rent per unit (monthly) | $1,400 |
Market rent per unit (monthly) | $1,600 |
Mark-to-market gap per unit (monthly) | $200 |
Units | 100 |
Annual gap at full occupancy | $240,000 |
Value created at a 5.5% cap rate | $4,363,636 |
The $240,000 is a ceiling, not a day-one gain. Leases roll over a full cycle, so only the portion renewing each year can be repriced. Dividing the captured $240,000 of incremental NOI by a 5.5 percent cap rate implies roughly $4.36 million of created value once the property is fully marked to market, spread across the years it takes leases to turn.
Variations and Edge Cases
Mark-to-market rent behaves differently across property types and rent environments, so the same headline gap can mean upside in a rising market and exposure in a falling one. The table below lists the situations an asset manager should confirm before crediting any mark-to-market upside to a hold thesis.
Variant | Treatment |
Negative mark-to-market | Contract rent above market; a renewal risk, not upside |
Regulated rent | Rent-controlled or income-restricted units cap the achievable mark |
Long-dated leases | Office or industrial leases can lock rates for a decade, delaying capture |
Concessions | Free rent and discounts shrink the true market rent below the face rate |
Falling market | A positive gap can compress or invert as market rents soften |
The most common error is treating the full mark-to-market gap as immediately available income. It is a stock harvested slowly as leases expire, and only to the extent the market rent assumption holds when each lease resets.
Mark-to-Market Rent vs Loss to Lease
Mark-to-market rent is often confused with loss to lease, and the two measure the same gap from different angles. Mark-to-market rent is the broader exercise of restating every in-place lease at current market, in either direction. Loss to lease is specifically the portion of that gap where market rent exceeds contract rent, the rent left on the table on occupied space.
The relationship is that loss to lease is one output of a mark-to-market analysis. Marking to market can reveal either a loss to lease, when the property is underpriced, or a gain to lease, when it is overpriced. Loss to lease names only the underpriced case, while mark-to-market rent describes the full repricing, upside and downside together.
Frequently Asked Questions
What does it mean to mark rents to market?Marking rents to market means restating each in-place lease at the rate that space would command if leased today, rather than at its locked contract rate. The exercise reprices the whole rent roll to current market, revealing how far above or below market the property currently sits.
How is the mark-to-market rent gap calculated?The mark-to-market gap is market rent minus contract rent. Per unit, subtract the contract rent from the market rent. As a percentage, divide that gap by contract rent, so a unit renting at $1,400 against a $1,600 market rent shows a 14.3 percent mark-to-market gap.
Is a mark-to-market gap always good for an investor?No. A positive gap, where market rent exceeds contract rent, is recoverable upside only if the market rent assumption is realistic. A negative gap, where contract rent exceeds market, is a downside risk because those leases are likely to reset lower at renewal.
Related Terms
Loss to Lease
Market Rent
Rent Roll
Net Operating Income
Value-Add