Feature Focus: Vacant Space MLA, Renewal Probability, CAM Reimbursement Groups
Today we’d like to kick off a regular segment that highlights key features we’ve built for Assess+RE. Our product team is constantly thinking about ways to minimize frustration and time spent on inputting assumptions so you can spend more time analyzing your deals.
This week, we will take a look at three features: Vacant Space MLA, Renewal Probability, and CAM Reimbursement Groups.
Vacant Space MLA
Perhaps the most time-consuming and important aspects of modeling a commercial property are managing existing vacant space and what happens to the space after a lease expires. Traditionally, you would need to input lease-up assumptions for each individual vacant space in a property. For a property with multiple vacant spaces, that becomes repetitive very quickly.
A Market Leasing Assumptions (MLA) profile is a collection of critical lease-related assumptions that can be applied to more than one space. In this way, each profile represents a certain category of space. For example, in a mixed-use commercial property you might create one MLA profile for a “Ground Level Retail” space, and another for “2nd to 4th Floor Office” space, with each profile having its own market and renewal rent amount, rent increases, typical TIs and LCs, etc.
Connecting an MLA profile to a vacant space
To use an MLA profile in the Rent Roll for vacant space, you only need to enter repetitive data one time, assign that profile to a vacant space, and designate a start date. Not only will this save time entering data, but will also make adjusting model-wide lease-up assumptions faster, allowing for better space and scenario management.
When underwriting a property it’s important to consider what happens to a space when its associated lease expires. The tenant might choose to renew their lease, or they might vacate the space, which can then be filled with a new market tenant. This uncertainty, coupled with varying assumptions between market rate and renewing tenants, makes projecting future cash flows for a property with impending lease expirations tricky.
A Renewal Probability, or the likelihood that a market tenant will renew their lease upon expiration, is a key factor in determining the values that Assess uses to calculate property cash flows.
Setting Renewal Probability within an MLA profile
For each MLA Profile, Assess uses the Renewal Probability to calculate a weighted average of the different assumptions based on the “market” inputs versus the “renewal” inputs. What results is a set of blended values for rents, downtime, and expected costs, which is then used to provide the best possible prediction of your project’s future cash flows.
CAM Reimbursement Groups
Modeling expense reimbursements can be complicated if your deal has multiple buildings, or if certain tenants reimburse for only some of a property’s expense categories. As an example, a property may have a net lease retail tenant on the ground floor, with six floors of modified gross lease office tenants up above. Additionally, just a third of those office tenants reimburse a portion of the building’s utilities, while the remaining tenants do not. Modeling the specific expense reimbursements for each of these tenants would be time consuming and the situation grows exponentially worse with additional tenants and market leasing profiles.
With Assess, you can model these complex reimbursement scenarios through the use of custom common area maintenance (CAM) groups.
CAM groups allow you to take any subset of your operating expense categories and bundle them together. For instance, if you are modeling a lease in which utilities are reimbursed differently than all of the other expense categories, you could create a CAM group that encompasses all expenses excluding utilities. Once the group is created, you can quickly reference it when setting up reimbursement structures in any of your MLAs or rent roll leases. These CAM groups also allow you to add or remove expenses at any time, and all linked MLAs or leases will dynamically reflect those changes – no need to manually add expense reimbursements to individual tenants.
Creating a reimbursement group
Selecting the group to be reimbursed
With the flexibility of CAM groups, you can easily and efficiently underwrite even the most complex reimbursement structures for any number of leases.
You can access these features (and many more!) right now in Assess. We’re excited for you to take a look and to hear your feedback.