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Rollover Risk
The rollover risk in real estate refers to the risks associated with a current lease expiring and that the tenant would not renew the tenancy contract, preferring to vacate and find another house to rent.
While not all landlords see lease renewal as a 100% good thing, most would prefer having a current tenant stay than having to find a new tenant.
This is because of the opportunity costs of vacancy, and the marketing costs of finding new tenants.
On top of this, big tenants who are taking up considerable rental space like anchor tenants, or those who are willing to pay a premium rental can be difficult to replace.
For example, if a tenant was paying 10% above the market, it might not be easy to find another who would do the same.
Even when a tenant has a right stipulated in a lease to renew at a certain price, there would still always be a possibility that it would not be exercised the the tenant.
In financing, rollover risks refers to the risks involved when a debt is scheduled to be refinanced.
For example, when a teaser rate for a mortgage expires at the end of the year, and the borrower is adamant that he would get it refinanced. The risks associated with the new terms of a new loan is the rollover risk.
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