Cash Flow Analysis Flashcards

Which Argus assumption most directly controls the length of time a space remains vacant between a departing tenant and a new tenant signing a lease?

Answer: Downtime / Void Period

The Downtime (or Void Period) assumption specifies how many months a space is vacant between leases, directly reducing cash flow during that period.

In an Argus model for a mixed-use development with retail on the ground floor and office above, which approach correctly handles differing market rent growth rates for each use?

Answer: Assign separate market rent groups with distinct growth rate assumptions for each use type

Argus allows multiple market rent groups, enabling the analyst to assign retail spaces retail market dynamics and office spaces separate office market dynamics independently.

An analyst wants to stress-test a property's cash flow for a credit tenant default in Year 4. In Argus, the best approach is to:

Answer: Model the tenant as vacating at Year 4 with downtime and new market rent assumptions

Modeling the credit tenant as vacating in Year 4 allows Argus to apply downtime, TI, and leasing commissions for the re-leasing scenario, accurately reflecting the cash flow impact of default.

In Argus, 'Operating Expense Ratio' (OER) is defined as:

Answer: Total Operating Expenses divided by Effective Gross Revenue

OER equals total operating expenses divided by effective gross revenue, measuring what percentage of collected income is consumed by property operating costs.

When modeling a ground lease in Argus where the property owner pays a ground rent obligation, this annual payment is classified as:

Answer: An operating expense deducted before NOI

Ground rent is treated as an operating expense deducted from revenue before calculating NOI, because it is a recurring fixed cost of occupying the land.

A property's 10-year Argus cash flow shows NOI growing from $500,000 in Year 1 to $750,000 in Year 10. The primary driver of NOI growth in a stabilized multi-tenant building is typically:

Answer: Contractual rent escalations and mark-to-market rollovers replacing below-market leases

NOI grows primarily as leases roll and are re-signed at higher market rates, combined with contractual rent steps built into existing leases.

In Argus Enterprise, the 'Weighted Average Cost of Capital' (WACC) is most relevant when used as:

Answer: The discount rate in a DCF analysis to calculate present value of cash flows

WACC serves as the discount rate in a DCF model, blending the required returns of both debt and equity capital to discount future cash flows to present value.