Lenders Are Now Scrutinizing Utility Expense with the Same Rigor as Rent Rolls.

Commercial real estate lenders have historically focused their underwriting scrutiny on revenue — rent rolls, lease abstracts, tenant credit quality. Expense line items, including utilities, were reviewed at a summary level.

That is changing. In the current lending environment, where NOI compression has driven significant value deterioration, sophisticated lenders are examining every expense line with new rigor. Utility expense — which can represent 15-25% of total operating expenses for certain property types — is now subject to the same documentation standards as rent rolls.

The specific questions emerging in loan origination and refinancing are: What is the utility account structure? When were accounts last reviewed against applicable tariff options? Is there an audit history? What is the basis for the expense run-rate projection?

Borrowers who can provide clean utility account documentation — including recent audit history, tariff classification rationale, and verified billing accuracy — present materially better expense credibility in underwriting. Those who cannot are increasingly asked to escrow against potential expense variance.