Evaluation Details and Structure Flashcards
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Read the first 7 Evaluation Details and Structure flashcards as text
How does ARGUS handle a lease that begins partway through a calendar year in the cash flow model?
Answer: ARGUS pro-rates the rental income for the partial year based on the actual lease commencement date
ARGUS pro-rates income (and associated costs) for leases that begin mid-period, ensuring the model reflects only the months of actual occupancy in the partial year.
What is a 'blended cap rate' in a multi-tenant ARGUS evaluation?
Answer: A weighted average cap rate reflecting the different implied yields across each tenant's lease, used to characterize the overall portfolio yield
A blended cap rate is the weighted-average yield implied by applying individual lease economics across all tenants in a property, giving a single summary figure for the overall asset.
In ARGUS, property management fees are typically modeled as:
Answer: A percentage of Effective Gross Income (EGI) collected each year
Management fees are an operating expense typically calculated as a percentage of EGI (commonly 2–5%), ensuring the expense scales with actual income collected.
What does a Debt Service Coverage Ratio (DSCR) below 1.0 indicate in an ARGUS levered analysis?
Answer: Net Operating Income is insufficient to cover the annual debt service, meaning the property cannot service its mortgage from operations alone
DSCR = NOI ÷ Debt Service; a ratio below 1.0 means NOI is less than debt service, so the investor must contribute out-of-pocket cash to cover the shortfall.
When modeling a mixed-use property with retail and office tenants in ARGUS, how are different lease structures handled?
Answer: Each tenant space can be assigned its own lease type (gross, net, modified gross) and corresponding recovery structure independently
ARGUS allows tenant-level lease structure customization, so retail tenants on NNN leases and office tenants on gross leases can coexist accurately in the same model.
In ARGUS, what is the key distinction between an 'unlevered' and a 'levered' return?
Answer: Unlevered return is based on property-level cash flows before debt service; levered return reflects cash flows to the equity investor after loan payments
Unlevered (before-debt) analysis evaluates the property on its own merits; levered analysis applies financing and shows the equity investor's actual return after mortgage payments.
How are capital expenditure (CapEx) reserves modeled in a standard ARGUS evaluation?
Answer: As an annual reserve amount (often expressed as a per-square-foot allowance) deducted from NOI to reflect future capital replacement needs
CapEx reserves are typically modeled as an annual per-square-foot deduction from cash flow to account for future capital improvements such as roof replacement, HVAC upgrades, and building systems maintenance.