ASC Evaluation Details and Structure 4

Question 1

What is the purpose of sensitivity analysis in an ARGUS evaluation?

Accepted Answer

To show how changes in key assumptions (e.g., cap rate, rent growth) affect output metrics like value or IRR

Answer

To automatically correct input errors in the cash flow model

Answer

To calculate the minimum required lease term for a property to be profitable

Answer

To generate required disclosures for SEC reporting

Question 2

In ARGUS, how does a higher general vacancy assumption affect property value?

Accepted Answer

Higher vacancy reduces Effective Gross Income, which lowers NOI and therefore reduces the capitalized property value

Answer

Higher vacancy increases value because it signals opportunity for rent growth

Answer

Vacancy assumptions affect only the IRR, not the direct cap-rate value

Answer

A higher vacancy rate automatically triggers a lower expense assumption that offsets the impact

Question 3

Which of the following market inputs is most critical when establishing market leasing assumptions in ARGUS for an office building?

Accepted Answer

Current market rent per square foot, typical lease term, and market TI allowances in the submarket

Answer

The property's original construction cost

Answer

The local corporate income tax rate

Answer

The national average occupancy rate across all property types

Question 4

What does 'absorption' mean in an ARGUS evaluation context?

Accepted Answer

The pace at which vacant space becomes occupied under new leases

Answer

The rate at which operating expenses increase over time

Answer

The depreciation of tenant improvement costs over the lease term

Answer

The method ARGUS uses to aggregate multiple properties into a portfolio

Question 5

If an ARGUS model uses a 5.0% going-in cap rate and Year 1 NOI is $1,000,000, what is the implied property value?

Accepted Answer

$20,000,000

Answer

$5,000,000

Answer

$10,000,000

Answer

$50,000,000

Question 6

In ARGUS, credit loss (also called collection loss) is best described as:

Accepted Answer

An allowance for rent that is billed but never collected due to tenant defaults or delinquency

Answer

The cost of tenant improvement allowances granted to risky tenants

Answer

The loss in property value caused by credit market tightening

Answer

A penalty assessed when a lease is terminated early

Question 7

How does projected market rent growth affect the long-term ARGUS valuation?

Accepted Answer

Higher market rent growth increases future NOI as expiring leases renew at higher rates, boosting the terminal value

Answer

Higher market rent growth reduces NOI because expense pass-throughs increase proportionally faster

Answer

Market rent growth has no effect on NOI because rents are fixed at current contract levels for all projection years

Answer

Market rent growth only matters for properties with fewer than three tenants