detailed reimbursement methods (part 1) – argus valuation dcf

This post is a part of a collection of posts about Argus Valuation DCF and the Argus Certification Exam.  You can view all posts in the series by following the Argus Certification Exam tag.

Being able to gross up expenses for a property that isn’t 100% occupied is important, but recording expenses in Argus is more than entering reimbursables and defining the gross up percent.  In the real world, leases have different reimbursement calculations.  Enter detailed reimbursement methods.

Detailed reimbursement methods allow for complicated reimbursements on a tenant specific or expense level.  If a tenant has an administrative charge with Common Area Maintenance (CAM) reimbursements or a cap on all expenses, a detailed reimbursement method can capture this.  When setting up tenants in the Rent Roll of Argus, simply right click the reimbursement cell or click the “Detail” button at the bottom of the Rent Roll screen.  Doing so activates the pop up box displayed above.

By default, there are no detailed reimbursement methods setup.  To add a method, click the New button.  Doing so will bring up the Detailed Reimbursement Methods screen.  Similar to the Rent Roll screen, rows are added for each expense or expense group.  Expense groups are simply groups of expenses that are setup by right clicking (or clicking the detail button) in the Reimbursable Expense and Groups Column.

In the screen shot above, reimbursable expenses are the bottom three items: Real Estate Taxes, Insurance and Landscaping.  Expense Groups in the list are CAM, All Expenses and Taxes & Insurance.  The shot below shows the details of the CAM expense group.  In it contains (just as described) all Common Area Expenses: Landscaping, Security and Repairs & Maintenance.  Pretty straight forward concept.  As shown, included expenses can be adjusted to a certain percent of the total expense.

Once a expense or expense group is identified there  are a number of different options for the reimbursement method column:

• Not Reimbursed (Excluded) – just as it sounds, any expenses with this reimbursement method will be excluded from the reimbursement.
• Net (Pays Full Pro Rata Share) – this selection specifies that the tenant is responsible for their pro rata share (tenant’s SF / total SF) of the expense.
• Increases Over a $ Amount – tenant is responsible for their pro rata share of reimbursable expense above the dollar amount (commonly referred to as the stop amount) entered in the field Amount field.
• Increases Over a $/SqFt Stop – rather than just a flat amount as described immediately before this, this option has the tenant paying their pro rata share for the reimbursable expense minus the $/SqFt amount entered in the amount field.  In other words, the tenant is responsible for expenses above the stated $/SqFt.
• Increases Over a Base Year Stop – tenant will pay their pro rata share above their base year stop.  The base year stop is the tenants pro rata share of reimbursable expenses in the first year of the tenants lease.
• Increases Over Base Year +1 – tenant will pay pro rata share of reimbursable expenses over their base stop year following the lease start.
• Increases Over Base Year -1 – tenant will pay pro rata share of reimbursable expenses over the base stop year prior to their lease start.
• Increases Over a Market Stop – tenant pays expenses over the market stop.  The market stop is entered as an amount per area in the first year of the analysis and inflates at the general inflation rate.
• Pays Specific Currency Amount – this is used for tenants who have negotiated a specific reimbursement amount to pay.
• Current Reimbursement Of – This is used when you don’t know the tenant’s original stop amount, but you do know what they are currently reimbursing.  Argus will calculate the expense stop which will be used to determine reimbursement amounts in the future.

The reimbursable expense or expense group and reimbursement method are a significant portion of the detailed reimbursement portion of Argus.  Part two of detailed reimbursement methods will discuss the remaining columns available in Argus.