Disposition Assumptions Section


Welcome to this video. In this video, I will cover the disposition section in the ARGUS Portfolio Model. In this section, I can make different exit assumptions for each property to account for various disposition possibilities.

Let’s start with 49 Road. 49 road is relatively small among the five properties, so I plan to sell it in 13 months with an 8% cap rate and 1.5% disposition cost. This early disposition should boost up the IRR of the deal. I can see the sale price is $3.8 million, and the Net Operating Income is $300,000. The disposition cost is 1.5% of the sale price. I can see a couple more metrics. The sale price per square foot is $95. 49 Road is 40,000 square feet, accounting for 9% of the portfolio square foot-wise. I can see from the percentage square foot. 165 roads and EFG are the main properties in this portfolio accounting for 73% of the portfolio in terms of square feet. Therefore, they will be sold at last 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. Going back to the Basic Model Information section, I can see the holding period is 10 years now.

Let’s continue with the disposition assumptions, I assume that Rue 104 will be sold 5 years after closing with a 6.25% cap rate and 1% disposition cost. At last, Rue 124 is assumed to be sold in month 25 with a 6% cap rate, and 1.5% disposition cost to boost up the returns. I am done with disposition assumptions.

Let’s check out if the cash flow reflects the assumptions I just input. I can see a drop in gross potential revenue in year 2 because 49 Road is sold, and its cash flow is no longer included in the forecast. Scrolling down. I can see that the sale proceeds are used to partially pay off the senior debt and mezzanine. The amount of debt gets paid off depending on the 49 road’s NOI as a percentage of the Portfolio’s NOI. Going to the Combined Monthly Cash Flow Summary tab, scrolling to month 13 when 49 Road is sold, I can see that 49 road accounts for 6% of the portfolio’s NOI. Therefore, 6% of the senior debt and mezzanine’s outstanding balance get paid off.

Going back to the Annual Cash Flow Summary tab, I can see the gross potential revenue and expenses continue to decrease in year 3 because Rue 124 is sold at the beginning of year 3. Just like the disposition of 49 Road, the senior debt and mezzanine are partially paid off. I can also see a similar situation in year 5 when Rue 104 is sold. The only difference is that the refinance debt is paid off partially because the refinance has replaced the senior debt and mezzanine in year 5. The disposition assumptions have been accurately reflected in the cash flow. I am done with the disposition assumptions section in the ARGUS Portfolio Model.

Thanks for watching this video. I will see you at the next one.