To all the office acquisitions analysts, how granular are your modeling templates?
For instance, lets say you want to model different lease-up scenarios for a multi-tenant office building (ie. 70% lease renewal probability vs 75% lease renewal probability for each tenant), do you model those different scenarios in Argus and then drop in each of the cash flows into multiple copies of a excel particular template? Or does your excel template accommodate different market leasing scenarios? Thanks
I have definitely done it the way you described, with multiple ARGUS cash flows feeding into the template. Depending on the complexity of the asset, and how many different sensitivities you want to run, you can also just run the ARGUS with the CFs excluding the suite(s) that you would like to run different scenarios on and layer that suite's CF on top of your ARGUS CFs in excel. At a prior company, we actually had a version of our model that was 100% in excel so you could run sensitivities on any of the leasing assumptions - this obviously had drawbacks in assets with complicated expense reimbursement or lease structures, but allowed flexibility that you can't get in ARGUS.
Ultimately, I try to anticipate the questions/changes that are going to come from my boss (and up the chain) and how easy those changes are going to be to make in my model given the way I set it up. If changes are going to be about debt assumptions and cap rates, having a fixed CF from ARGUS ought to be just fine. But if they are really sensitive to the lease-up assumptions of a single building/suite, I might spend some extra time adding that functionality to the model so I don't have to update 5 ARGUS runs every time someone wants to see a change.
I've never used Argus before but my boss mentioned to me yesterday that Argus had/has a lease renewal assumption input that is pretty easy to change. Is that not correct (about it being easy to change)?
Yeah - very easy to change. You would just need to export new CFs and drop them into your model every time you make a change. Not really much trouble, but I've had situations where execs have wanted to toy with assumptions themselves or see sensitivities based on certain leasing assumptions. It's much easier for them to adjust those if they are able to just change a number in your excel model rather than going into the ARGUS rent roll and then re-exporting CFs.
Right, because the Argus Excel exports don't have formulas in them, correct?
I personally just have a tab with the Argus CF that my model pulls from. Make the changes to MLA's in Argus and drop the new CF in there. I guess you could do a toggle if you wanted to keep all your scenarios in one model but I don't think it's worth the brain damage of trying to do all the leasing calcs yourself
Not granular. Avoid analysis paralysis like the plague. Do desktop underwriting for other scenarios and have those return metrics in your head. You won't waste as much time formalizing / circulating valuations and you'll look smart knowing on the fly how returns are affected by adjusting certain levers. Anticipate every possible question your superior might ask and have the answer. Simple answers using round numbers spoken with confidence goes a helluva a lot further than a detailed returns matrix outlining all possible outcomes.
Sometimes being the best analyst is not being the best analyst...... Being the best analyst will ensure you remain one.
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