Argus & Base Year Reimbursements
I am an experienced Argus user and have always had an issue (previously with DCF and now with Enterprise) with the way Argus models base year reimbursements. I have never seen discussion of this issue so I am wondering if there is a obvious workaround I am missing.
The issue:
Typically, in a new FS Base Year lease, the tenant does not start paying reimbursements until the start of lease year 2 (month 13) of their lease. However, no matter what I do, Argus defaults to having the tenant start paying at the start of the next calendar year. This means that if a tenant's lease starts 12/1/18, and thus should not start paying until 12/1/19, Argus will model them to start making monthly payments on 1/1/19. Note, I am not talking about a calendar vs fiscal year inflation issue here, I am strictly talking about the date when the tenant starts paying.
Unfortunately, I don't have access to AE right now, but if I remember correctly, there is an option which will enable tenants to reimburse based on their base year. I believe it is using "reimbursements based on fiscal year".
Otherwise, another way which sometimes can be tedious, is to manually enter the first-year expenses as a base stop. For example, if you sum the projected taxes from 12/1/18 to 12/1/19, you can enter that amount as a base stop for the tenant. Going forward, they would have to pay their pro-rata share over that number.
I think you are referring to the calendar vs fiscal year inflation. That option will effect when the recoveries inflate but that's not really what I need. Basically what I want is an custom fiscal year for each individual tenant based on their start date.
The FS leases that I have seen have always pegged a tenants base year to a calendar year expense (not a lease year). So if they signed a lease 12/1/18, and we (landlord) were aggressive, we would push for a 2018 base year (w/ tenant paying reimb. 1/1/19), but given the point in the year, a 2019 base year would be market (and tenant would start paying reimb. 1/1/20). This way various tenant base years are tracked by calendar year - not month. Is this not typical? To your question - I am locked out of my AE right now so can't check - but a couple of thoughts: (1) you can do monthly calculation in AE. Not exactly sure how this would treat the scenario you mentioned - it might just set a monthly rate so if you set in a low month, the BY would be artificially low, or vice versa. or (2) There is a base year +1 option in the detail reimbursement method (in DCF too). In scenario you mentioned above, it should kick their reimbursements out a year if I am not mistaken.
Worst case scenario would be to hardcode figures for month you need it to start with and then just apply some sort of growth factor. I know it's absolutely the worst way to handle it... but if you need to get it done quickly!
Yes and no. In my experience, you are right that the expense stop amount is typically tied to a calendar year so that that the landlord does not have to calculate the unique base year amounts for each tenant depending on when they started. However, and again in my experience and the example here, the tenant is not obligated to start paying these reimbursements until the start of their 2nd lease year - here 12/1/19.
Not sure what you mean by thought (1) but with regards to base year +1, that will just push out the date they start paying to 1/1/2020. While that would get me generally closer in this case given the 12/1/xxxx start date, it doesn't help in the case of a tenant starting 6/1/2018. In that case, it is either start paying 6 months early (1/1/19) or 6 months late (1/1/2020.
Right. But that is what it is. That's generally how office leases are structured in a multi-tenanted building. Part of the negotiation is determining which year is your base year. If a lease starts in the middle of the calendar year, which year you use for your BY is part of the give and take of the negotiation--maybe the BY will be this year or maybe it will be next year--it depends on the strength of your negotiation position, how important the income/cost is, etc.
I've never heard of an office lease in a multi-tenanted building having the pass throughs begin in the 13th month of the lease (although I'm sure it's happened at some point somewhere)--the administrative task would be a nightmare for the management company (to establish a separate trailing 12-month base year for each individual tenant, to project out costs for different times of the year for estimates, to reconcile expenses every month for tenants with BYs beginning in different months). It's (almost always) the beginning of the calendar year following the BY. In other words, Argus is set up the way it is because it reflects how the office market (typically) works in the U.S. (again, I'm sure there are some outliers/exceptions).
Perhaps I wasn't clear, yes the base year expense stop amount is tied to a specific calendar year amount but the tenant does not begin paying over that amount until lease year 2. And I would say this is the norm, at least in my market.
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