Market Assumptions Flashcards
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Read the first 7 Market Assumptions flashcards as text
In ARGUS Enterprise, a 'lease-up' scenario for a partially occupied building primarily relies on which market assumption to project future cash flows?
Answer: Absorption period and market rent for new leases
Lease-up projections use absorption period and market rent assumptions to estimate when and at what rate vacant space will be leased.
Which market assumption in ARGUS would an analyst adjust to reflect an expectation of softening demand and longer re-leasing periods?
Answer: Increase months vacant (downtime)
Increasing months vacant reflects the expectation that it will take longer to find new tenants when market demand is soft.
ARGUS allows analysts to set different market leasing assumptions for different tenant categories. What is the primary reason for this segmentation?
Answer: Different tenant types have different lease structures, TI norms, and rent levels
Anchor tenants, in-line tenants, and office tenants each have distinct market norms for rent, TI allowances, and lease duration, requiring separate assumption sets.
When modeling a multi-tenant office building, an analyst wants to reflect rising construction costs for tenant improvements. Which market assumption should be adjusted?
Answer: Tenant improvement allowance per square foot
The tenant improvement allowance per square foot is the market assumption that captures the cost of building out space for new tenants.
An ARGUS model shows a tenant rolling to market rent upon lease renewal. If market rent is below the tenant's current in-place rent, what cash flow impact results?
Answer: NOI decreases because renewal rent is lower than the expiring contract rent
If market rent is below in-place rent, the renewal at market rate causes a drop in rental income and therefore reduces NOI.
In ARGUS, 'free rent' entered as a market leasing assumption affects cash flow by:
Answer: Reducing rental income during the free rent period for new leases
Free rent reduces the rental income recognized during the concession period, directly lowering cash flow in those months.
An analyst is modeling a suburban office park and sets a market rent growth assumption of -2% for year one followed by +4% thereafter. This approach is best described as:
Answer: A phased market rent growth assumption reflecting near-term softness before recovery
Using a negative growth rate in year one followed by positive growth models a market correction then recovery, which is a phased or tiered growth assumption.