ASC Market Assumptions 2 — Questions and Answers
Question 1: In ARGUS Enterprise, which market assumption drives the calculation of lease renewal probability for expiring tenants?
- Renewal probability percentage (Correct answer)
- Market rent growth rate
- Vacancy loss percentage
- Absorption period
Correct answer: Renewal probability percentage
Renewal probability is the market assumption that determines the likelihood an expiring tenant will renew rather than vacate.
Question 2: When setting market leasing assumptions in ARGUS, what does 'months vacant' represent?
- Time between lease expiration and new tenant occupancy (Correct answer)
- Duration of the analysis period
- Length of the rent-free period
- Time before rent escalations begin
Correct answer: Time between lease expiration and new tenant occupancy
Months vacant (or downtime) is the assumed period a space sits empty between the departure of one tenant and occupancy by the next.
Question 3: A property analyst sets a market rent growth rate of 3% annually in ARGUS. How does this affect new leases signed in year three?
- New lease rents are inflated by 3% compounded over three years from the base market rent (Correct answer)
- New lease rents remain at the original market rent entered
- New lease rents decrease by 3% per year
- New lease rents are adjusted only at lease expiration
Correct answer: New lease rents are inflated by 3% compounded over three years from the base market rent
ARGUS applies the market rent growth rate cumulatively each year, so year-three new leases reflect market rent escalated by 3% compounded for three periods.
Question 4: Which input in ARGUS market leasing assumptions controls how quickly unleased space is expected to be absorbed by new tenants?
- Months of absorption (Correct answer)
- Vacancy credit loss
- Renewal probability
- Tenant improvement allowance
Correct answer: Months of absorption
Months of absorption specifies the time period over which vacant space is expected to be leased up at the market's assumed pace.
Question 5: In ARGUS, what is the typical effect of increasing the market rent growth rate assumption while holding all other inputs constant?
- Property value increases due to higher projected NOI (Correct answer)
- Vacancy rates decrease automatically
- Tenant improvement costs decline
- Debt service coverage ratio improves immediately
Correct answer: Property value increases due to higher projected NOI
Higher market rent growth produces higher projected rents on new and renewal leases, increasing NOI and therefore property value.
Question 6: When an ARGUS model uses a 'speculative lease' or 'market lease,' which set of assumptions governs the terms of that lease?
- Market leasing assumptions defined by the analyst (Correct answer)
- The existing tenant's lease terms
- The general inflation rate
- The reversion cap rate
Correct answer: Market leasing assumptions defined by the analyst
Speculative or market leases draw their terms—rent, free rent, TI, and lease length—from the market leasing assumptions set by the analyst.
Question 7: A retail property in ARGUS has market leasing assumptions that include percentage rent. What additional input is required for percentage rent to calculate?
- Sales volume breakpoint (Correct answer)
- Tenant credit rating
- Lease commencement date
- Building depreciation rate
Correct answer: Sales volume breakpoint
Percentage rent requires a breakpoint (natural or artificial) above which the tenant pays a percentage of sales as additional rent.
ASC Market Assumptions 2
In ARGUS Enterprise, which market assumption drives the calculation of lease renewal probability for expiring tenants?