Argus Interview Test
Hey Guys,
I have a test from a firm to complete an Argus Enterprise modelling test as part of an analyst interview. They basically sent DD materials in a dropbox for a shopping center and want to see what kind of model I can build. I'm familiar with the program but have a couple of questions. If anyone can answer some of them would be very grateful:
1) I see values on the T-12 for expenses (CAM, Insurance, Non-reimbursable, etc.) The amount changes every year. What's the best way to put it into Argus? How do I know what percentage is fixed? What value would I use to input? The most recent year? They gave me some expense bills also.
2) A lot of items don't match (Tax bill does not match t-12), (CAM recovery does not match what's specified in the lease), etc. Which value do I use? What's in the t-12/RR or what's in the lease?
3) Assumptions need to be made (inflation, market leasing, etc.) What's the best source(s) to use? There's an existing loan but do I just assume a new acquisition loan?
4) Info is missing. Capex reserve, management fees, non-rental income isn't consistent. How do I get that into Argus?
If anyone could help out with some of these please dm or comment...you would be a huge help.
I don't know anything about Argus but good luck
If I were modelling this for a client, I would use the most recent year and grow it by 3%. You could also look at the trend over the past several years and see the avg % growth and then use that amount. Whatever you do, just make sure you are able to justify it if they ask. You would enter this in ARGUS in the EXPENSES>OPERATING TAB. Just enter the amount and then leave it as the default option on Expense inflation rate. Use the MARKET TAB> INFLATION to then key in your expense inflation rate.
Regarding what expense % is fixed, you can do this 1 of 2 ways, either just assume that it is 100% fixed. Or take the expenses that are likely to vary with occupancy ( trash, utilities, cleaning, etc) and make those anywhere from 30-50% fixed. Typically for retail, I would just model the prior and not the later.
This is because the tax bill is semiannually, so it will be half of the 2020-2021 bill and half of the prior year bill. Depending on the location you are in, In California the taxes will reset on purchase price, and I don’t know if they are testing you on this. If they are, you would need to enter a purchase price in the INVESTMENT tab and set your prop tax expenses to the PROP 13A, and make sure that in the modelling options it is set to calculate on Prop 13A. Otherwise just take prior years tax.
Always got off what is in the lease if you have it, too many times I have seen property managers fat finger the RR and enter in error.
Inflation: 2-3%
Market leasing: you will need to make assumptions for each suite based on current/ market rents. Downtime, TI’s and Term will vary by market, LC’s you can use 6%/3%
Unless you are going to assume the existing loan, you would model a new loan on acquisition.
Capex reserve: depends on the condition of the property. If it is relatively new, throw in .20-.30 per sf. in the EXPENSES>CAPITAL
Mgmt. fee: unless otherwise stated 3% of EGR is pretty common
Non rental income: REVENUE tab> MISCELLANEOUS
My goodness, you don't even know how much you helped, thank you so much. Just one more. For the vacant spaces, do I model them in getting leased up (showing occupancy at 100%), or just keep them vacant?
model them getting leased up, but show it after year 1 so that you can see the true cash flow in year 1. have them start in month 13 and then stagger them every couple of months ( month 13, month 15, month 17 etc. ) what is the current occupancy?
Current occupancy is just under 80%.
Ok, you can split up up that 20% vacancy to lease up around ~5% per quarter starting in month 13 and wrapping up by end of year 2.
Do what Analyst 1 said but also make sure to leave a 5% general vacancy upon full lease up as well. There's an option for that somewhere but I'm rusty. You probably know this but its pretty standard practice for office/retail deals.
Yes good point, you want to have a general vacancy factor in the MARKET>GENERAL VACANCY tab.
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