Monkeys,
For those of you at smaller shops that may not have access to Argus, how do you model your leases?
If using Excel would anyone be willing to share a template / example?
Relatively new to this and am currently using Justin Kivel's lease model (Break into CRE). For those that have seen that model, any thoughts? Is this the best way to model the commercial leases in Excel? Is there another way to go about it?
Any help would be greatly appreciated.
Thanks,
Nessy
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Bump
What asset type are you working with? If it's already stabilized, in some cases it may make the most sense to just do a direct cap rather than dcf.
Looking at an office building - leases are expiring within the next 2 years.
Any thoughts would be very greatly appreciated!
If you wanted to keep it simple, you could still do a direct cap, and just adopt a market-oriented rent for the upcoming vacant units for your stabilized income. Then take the difference between your in-place rent and stabilized rents as a one time below-the-line adjustment to value.
In other words, if your in-place rents are $60 psf (annually), but market rent is now only $50 psf, then it would be (60-50) * sf * 24/12. This would be an upward adjustment to value to capture the interim extra rent your getting from the in-place leases.
You could also do the same thing for your lease up costs (e.g. 12 months absorption, 3 months free rent, 3 months TI, broker's fee). These would all be downward adjustments to value. You'd still need to factor in a standard vacancy and credit loss factor though to calculate your capitalized (pre-adjusted) value.
You could also do all of the above and factor in a renewal probability. Although an in-place tenant is probably not going to want to renew at an above-market rent...
If you wanted to make it more complicated, you'd could do a DCF and use a renewal probability factor. I'm not sure that this would really give you much more accuracy, though. A DCF can give you more accuracy when there are a high number of tenants with different tax reimbursement base years and staggered lease expirations throughout the analysis period.
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