Expense Modeling Flashcards
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Read the first 7 Expense Modeling flashcards as text
In ARGUS Enterprise, what does 'grossing up' operating expenses mean when calculating tenant CAM reimbursements?
Answer: Adjusting expenses to reflect what they would be at a specified occupancy level (e.g., 95%) so tenants pay a fair share even when the building is partially vacant
Grossing up normalizes variable expenses to a hypothetical full-occupancy level so that no tenant benefits from or is penalized by building vacancies when computing reimbursable expenses.
How are capital expenditure reserves (replacement reserves) typically modeled in ARGUS Enterprise?
Answer: As an annual per-square-foot reserve entered in the CapEx or capital expenditure section, reducing cash flow below NOI
Replacement reserves are usually entered as a per-square-foot annual amount in the capital expenditures section, flowing through below NOI to reflect ongoing capital set-asides.
What is an 'expense pool' in ARGUS Enterprise, and what is its primary purpose?
Answer: A grouping of specific expense line items that are allocated to tenants for reimbursement purposes, allowing precise control over which costs are recoverable
An expense pool lets analysts bundle designated expense lines together and assign them to tenant leases for CAM recovery, giving control over exactly which costs flow to which tenants.
In ARGUS Enterprise, how does the software calculate a tenant's CAM reimbursement using the pro rata share method?
Answer: By dividing the tenant's leased square footage by total building square footage and multiplying by the recoverable expense pool total
Pro rata share reimbursement divides the tenant's leased area by the total rentable building area and multiplies that fraction by the total recoverable expenses, giving each tenant their proportional share.
When modeling real estate taxes in ARGUS Enterprise, which approach most accurately reflects the risk of a reassessment upon sale?
Answer: Modeling taxes to step up in the year following a sale event based on the projected sale price and local assessment ratio
A sale can trigger a reassessment, so sophisticated ARGUS models include a tax step-up in year one of a new ownership period based on expected sale price and local mill rates.
What is the difference between 'controllable' and 'non-controllable' expenses in ARGUS Enterprise expense reimbursement modeling?
Answer: Controllable expenses (e.g., management, maintenance) can be capped by lease provisions; non-controllable expenses (e.g., taxes, insurance) are typically excluded from tenant caps
Many leases cap annual increases on controllable CAM items (items within management's control) while allowing non-controllable items like real estate taxes and insurance to pass through without a cap.
In ARGUS Enterprise, what impact does a high vacancy assumption have on expense recoveries in a building with NNN leases?
Answer: Higher vacancy reduces total expense recoveries because vacant space does not generate tenant reimbursements, leaving the landlord to absorb those costs
Under NNN leases, only occupied tenants pay their pro rata share of expenses; vacant space has no reimbursing tenant, so the landlord must absorb the expense shortfall from those vacant units.