Resources from Realogic:
Argus™ Modeling Tip
Expense/ Recovery Gross Ups (Argus v12.0 vs. v13.0)
By: Brandon Olson and Monica Kelly, Realogic Analytics, Inc.

If your firm is using the latest version of Argus (Argus 2006 or Version 13) there may be an error with your Argus file if you are grossing up expenses for recovery purposes.

For Argus 2006, version 13

If the Argus file has a variable expense entered in the first expense line of the Reimbursable Expense section, it appears that the gross-up mechanics work properly. If a variable expense is in any expense line other than the first, Argus will gross-up the expense to the global occupancy percentage for all tenants. This applies even if the gross-up percent selected at the detailed reimbursement level is "No". It also does not matter if the expense is passed through directly or via an Expense Group.

If all the tenants use the same gross-up percentage, then the Argus file should calculate the recoveries properly no matter the placement of the expense line. If there is more than one variable expense that is grossed-up for recovery purposes, then it appears that the recovery calculations will be inaccurate.

Our correspondence with the Realm on this issue has produced two responses. One, they notified us of the temporary work around by moving the variable expense to the first row. Additionally, they indicated that a permanent fix will be included in the next patch which is expected to be distributed in February 2007.

For Argus version 12

If your firm is using Argus Version 12, then the placement of the variable expense in the reimbursable expense section does not affect the program's ability to calculate gross-up mechanics correctly. However, our company encounters several common modeling mistakes. The following list of tips will help you avoid some of those missteps:

1. Only variable expenses can be grossed-up to a desired level of occupancy. If the Argus file only has fixed expenses, no gross-up calculations will exist.
2. When entering the variable expense, enter the amount as if the building was 100% occupied. The Argus file will reduce the expense to actual occupancy level of the file.
3. Only expenses entered in the Reimbursable Expense section can be grossed-up for recovery purposes. The expense can be entered directly on a line or be part of a Sub-line.
4. Using the % of Line feature to reference another Reimbursable or Non-Reimbursable expense does not work. The Argus file will not calculate any expense gross-up for recoveries that uses the % of Line.

These tips apply only if the expense amount is grossed-up, and not if the denominator that is used to calculate the tenant's pro-rata share is manipulated.

Once the patch for Argus 2006 is available, Realogic will retest the calculations and amend this tip sheet.

Featured Realogic Services

Technology & Data Migration Services

Realogic Analytics has been providing consulting and technology services to the commercial real estate industry since 1992. During the past few years our technology and data migration service offerings have grown dramatically, to include the following:

• Web Based Budgeting/Forecasting/Projection Solution
• Argus™ Valuation & Reporting Solution
• Custom MRI™ Reporting Solutions
• Software Development
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• Data Migration/Integration
  • Ellipsis® -> CTI™ or MRI™
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  • Anything -> Argus™/Dyna™

For information about our technology service
please call 312-782-7325 or email:
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Jim Pettinger (jpettinger@realogicinc.com ).

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Value in commercial real estate is derived, at the most basic level, from the leases. Therefore, it's critical to manage lease information in order to maximize asset value. That's where Lease Abstracting comes into play. Lease abstracting can be a tough, arduous task, but its importance cannot be overlooked.

The Realogic team has been abstracting leases since 1992, and at that time, most of our abstracting was completed for the acquisition team during due diligence. However, during the recent years, we've seen a surge within our Lease Administration department. Once all leases are abstracted, Realogic receives new and updated leases/documents on a predetermined schedule (weekly, monthly, quarterly). The leases and documents are abstracted and all necessary reports are made available to the client. Clients rely on the experience and expertise of our lease abstracting team to help them manage their leases.

If you'd like more information about our lease abstracting and administration services, please contact Dale Vanderlaan at 312-782-7325 or at dvanderlaan@realogicinc.com.

Case Studies

SIZE that Loan!

Situation
The structured finance group of a large investment bank needed to quickly provide a preliminary loan quote on a 30+ building CBD portfolio with 1,800+ tenants. The main sources of data were multiple Argus™ files.

Solution
Realogic used their Argus™ Data Extraction Tool to quickly populate the client's underwriting tool, providing a complete audit trail, as well as in-place rental income at multiple points in time.

Coming Spring 2007!
All of our clients will be able to access this amazing MS Excel™ based tool to quickly populate their underwriting tools. Geared to both the debt and equity communities, this Excel tool will allow seamless extraction of Argus™ data to almost any underwriting template. Contact Jim Pettinger for details (jpettinger@realogicinc.com).

MRI™ to Argus™ data migration

Situation
Our client was given a two week period to evaluate assets prior to an offering memorandum being made available to other industry players. Unfortunately, no Argus™ files existed and information was only available from the accounting system.

Solution
All data, including recovery mechanics, resided in MRI™. Realogic extracted all data and built 140+ Argus™ files from scratch within five days. Realogic then prepared an Excel workbook of market data for each asset that was given to the underwriting team to assist in their process. After the underwriter made adjustments to the market data, Realogic re-imported the changes to the Argus™ files. The client was able to perform an in depth portfolio analysis and moved ahead with the transaction.

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Kevin R. Mysliwiec
Kevin recently joined Realogic as a Staff Consultant. His duties involve financial modeling, analysis and capital market transaction due diligence. Kevin graduated from University of Chicago Graduate School of Business with a concentration in Analytical Finance.

Monica Kelly
Monica joined Realogic as a Senior Analyst and has over 5 years of real estate experience. Her duties include financial proforma development and review, financial modeling/analysis, and due diligence and underwriting support. Monica graduated from Loyola University with degrees in Mathematics and Business Administration.