Argus for multifamily
I hear a lot about thr ubiquity of Argus in commercial real estate, but aparently it has not been widely adopted for multifamily. Why not?
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Leases.
agreed, argus is useful when dealing with complex commercial leases. For MF, the annoyance of argus outweighs the benefits
Pretty easy to understand why. Argus is easily applied to office and retail due to a limited amount of tenants. Argus can factor in lease rollover and group expirations, also lets you enter releasing probabilities.
Now take for example, a 300 unit class A apartment. Are you really going to enter in each single unit. Also lease rollover wouldn't apply because unlike retail/office, the apartment leases are only a year long. Its much easier just to simply model out vacancy and market rent through excel. Argus would be ridiculous to use in multifamily.
Also in office/retail properties, each lease could be different, you might have some NNN leases. Other leases could show the landlord is responsible for the CAM. There is just too many factors. Argus lets you model the different types of expenses you will have per each lease. In multifamily, each lease is pretty much identical, tenants cant negotiate terms since the building could just find someone else.
This. Your much better off just cracking the Rent Roll into excel and working with T-3/6/9 roll rates and rent growth.
Teddy hit it on the head. Argus is useful for modeling out cashflows associated with long-term commercial leases (i.e. escalating rents, expense reimbursements, etc.). Multi-family leases follow a standard form and are really not much longer than 1-year hence no need for argus.
On a separate note, @"TeddyTheBear" have investors in your fund ever requested the argus drop for resi properties? This has happened to me a few times and is annoying to explain to investor relations an Argus run for multifamily would be useless.
Never had a situation where investors or anyone requested an argus drop for MF properties. Although I had one individual who asked if argus could be used for hotels, oh boy that was such a headache to explain.
It can be done, and I have heard a BB CMBS origination officer say that he prefers multifamily numbers to be delivered in Argus format. He admitted it sounded silly but said it was pretty easy to run in Argus.
anyway, the reason it's not done is because multifamily is easy enough not to involve Argus. Why mess with that crap when you can run simple projections in Excel?
I have never once had any lender CMBS, lifeco, agency or otherwise ask for apartment financings to be delivered in Argus. And if they did I guarantee we would tell them to go suck eggs.
Lol. This topic is always so funny. People who often don't know what they are talking about like to name drop that "you can't do multifamily in argus" all the time. These are usually the type of people who have just heard the word "argus" associate it with real estate but don't know what the hell it really is or how to use it. For the record you totally can do a dcf valuation of a multifamily property in Argus (fairly easily) and people do.
Of course you can "do multifamily in Argus" it's just that it's that there is absolutely no reason to do it for valuation of a single property because it's a terrible instrument to value multifamily. The only reason Argus is a good tool is because of detailed reimbursements and tenant rollover assumptions. That's basically it.
Sure you CAN, but why take the trouble? Plus since multifamily leases are typically 15 months, you have to then make assumptions about renewals. Assumptions on top of assumptions. I guess if your acq strategy is to reposition the tenant base it might make sense. But if you have trailing financials/RR's, a good sense of the market around you (both current and historical), why not just slap on a loss factor and be done with it?
Double post sorry. Yes you CAN use argus for multifamily. But since multifamily leases typically run 15 months, you have to make assumptions about (probably multiple) renewals. If you have trailing financials/RR's and a good sense of whats going on in that market, why wouldn't you just slap on a loss factor and be done with it?
I know a couple of funds/investors who REQUIRE all assets (including MF) to be modeled in Dyna/Argus. I realize It is fairly simple, this might be the most mundane exercise on the planet.
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