AN OVERVIEW OF ARGUS PORTFOLIO MODEL
Transcript
Welcome to this video. I am going to walk you through this ARGUS Portfolio Model and show you how to underwrite a real estate portfolio within 10 minutes. If you are interested, please check out our website for more information. I have put a link of the website in the description below.
ARGUS Excel Model
The ARGUS Portfolio Model goes hand in hand with the ARGUS Excel Model. If you don’t know ARGUS Excel Model, I will put a link in this video and the description below for it. You are welcome to check them out. As you can see here, five properties are already underwritten separately in the ARGUS Excel Model. I will use the ARGUS Portfolio Model to aggregate these five models.
Instructions
When the ARGUS Portfolio Model is opened, the first things you are going to see are these simple instructions to inform you how to use the model. You may click the reset button to clear previous data in the model. Since I already click it, I will go straight to the input worksheet and start inputting assumptions to underwrite a hypothetical real estate investment portfolio.
Importing Cash Flows
As a rule of thumb, all the empty blue cells are inputs. I am going to type Oct 1, 2021, as the closing date. ABC Portfolio for the deal name. Then I click the UPDATE button. A window pops up to let me choose the individual ARGUS Excel Models. I select the five models and click Open. The system is opening these files for me, and it takes a couple of minutes. I will fast forward here. A second window pops up and shows me the name of files I select. It looks good. I will click Save. Now the system is importing cash flows from individual files for me. This will take another couple of minutes depending on the speed of your computer. It is done now. Under the property name, I can see that five properties have been imported.
Uses and Sources
For the time being, I will copy and paste my sources and uses. As you can see, there’s plenty of space for uses and sources section, so you can add your own line items. I already have my line item names in place. This speeds up the process. Most of them are based on the dollar amount and two are based on percentage. If you have more percentage line items, don’t forget we are still in excel so you will be able to change formats and cells to meet your needs. Now I finish my uses and sources.
Debt
Let’s move over to the debt section. For senior debt, I am going to input no interest-only period, a 30-year amortization schedule which is 360 months, a 5-year term, and a 2.5% interest rate. For mezzanine financing, I am going to input no interest-only period, a 30-year amortization schedule which is 360 months, a 5-year term, and an 8% interest rate. For refinance, it is going to occur 5 years after the closing, which is Oct 1, 2026. The portfolio is refinanced at a 6% cap rate, 70% loan to value, no interest-only period, a 25-year amortization schedule, and a 3% interest rate. The debt section is complete.
Property Information Section
Let’s move to the Property Information section and Other Assumptions section. I type AAA Capital for the GP name. BBT Capital for the LP name. XYZ Boulevard for the property address. ABC for the city. Texas for the State. 10 acres for the site size, which is about 435,600 square feet. Summing up the two reserves in the uses section for the total reserve of 4.5 million.
Disposition Assumptions
Let’s move to the disposition assumptions for the five properties. In this section, I can make different exit assumptions for each property to account for various disposition possibilities. 49 Road is relatively small among the five properties, and I plan to sell it in 13 months with an 8% cap rate and 1.5% disposition cost. This early disposition should increase the IRR of the deal. 165 road and EFG are the main properties in this portfolio so they will be sold at the end of the 10-year holding period. I will assume that 165 Road will be sold at a 7.5% cap rate and 1% disposition cost. EFG will be sold at a 5.25% cap rate and 1% disposition cost. I assume that Rue 104 will be sold 8 years after closing with a 6.25% cap rate and 1% disposition cost to boost up the returns. At last, Rue 124 is assumed to be sold in 25 months with a 6% cap rate and 1.5% disposition cost. I am done with disposition assumptions.
Waterfall Assumptions
Let’s move to Waterfall assumptions. I will select monthly cash distribution. There are 3 tiers. The preferred return is 8% and compounding. The first tier’s hurdle rate is 10% and the return is split 12% and 88% between the general partner and limited partner. The second tier’s hurdle rate is 15% and the return is split 15% and 85% between the GP and LP. After the second tier, the return is split 20% and 80%.
I have finished all the inputs. Let’s go on and click on the FIX Everything button to see if the system catches errors in the model. It seems that I have negative cash flow in the pro forma. I will let the system fix this for me automatically. Everything looks good now. I will click Okay to close the window.
Executive Summary
Let’s go ahead and check out the Executive Summary. We see a summary of a sensitivity test of the purchase price. Uses and sources. Debt assumptions. Debt service summary. Deal level returns. General Partner’s returns. Limited Partner’s returns. Carried interest analysis.
This is all for the ARGUS Portfolio Model walk-through. Thanks for watching. I will go into detail on each section of the ARGUS Portfolio Model in future videos. See you in the next one.