Understanding Leases: Office Buildings – Part 2b
Grossing Up Reimbursable Expenses in ARGUS
This post and video are a follow up to a post written back in late October discussing grossing up reimbursable expenses. If you haven’t gotten to read that yet, you can do so by clicking here: https://www.adventuresincre.com/understanding-leases-office-buildings-part-2/
The purpose of this video is to help clearly explain how to do this in ARGUS and also to show how ARGUS goes about calculating the numbers that appear in the pro forma it produces. To many users, ARGUS can appear to be a bit of a black box and it is beneficial for those using the program to understand how it does its calculations.
The one major difference from ARGUS and my example in the previous blog post is that my blog post example is emulating grossing up from the end of a billing period that already took place and therefore, has actual expense numbers to use. In ARGUS, you are at the beginning of a billing cycle and projecting future expenses and returns. So, to do this in ARGUS, it requires you to project an expense cost at full occupancy and then let ARGUS know how much of that cost is fixed and variable, thus ARGUS will calculate the expense based on this information and your projected occupancy for each year. If that confuses you at all, it will hopefully all be cleared up for you in the video below.
Check Out: Understanding Leases: Office Buildings – Part 2a
As always, if you have any questions or comments or would like to get in touch, please feel free to contact me HERE.
Frequently Asked Questions about Grossing Up Reimbursable Expenses in ARGUS
What does “grossing up” expenses mean in commercial leasing?
Grossing up refers to adjusting operating expenses as if the building were fully occupied. This ensures that tenants pay a fair share of variable expenses, regardless of the actual occupancy level.
How is grossing up handled differently in ARGUS versus manual calculations?
The blog explains that in manual examples, grossing up is calculated after the billing period using actual expenses. In ARGUS, the user projects expenses at full occupancy in advance and specifies fixed vs. variable portions so ARGUS can adjust based on projected occupancy.
Why does ARGUS need fixed and variable expense inputs?
ARGUS uses these inputs to estimate how expenses will scale with occupancy. Fixed expenses remain constant, while variable expenses adjust according to occupancy projections. This allows ARGUS to simulate grossing up automatically during underwriting.
What is the key takeaway from the ARGUS gross-up example?
The takeaway is that understanding how ARGUS calculates grossed-up expenses helps demystify the platform’s “black box” feel. The user must proactively define projected full-occupancy costs and expense variability for accurate results.
How is the timing of grossing up different in ARGUS?
In ARGUS, grossing up occurs at the start of the billing cycle, based on projections. In the blog’s prior example, grossing up was done at the end of the period using actual incurred expenses. This shift in timing is a key distinction.
Is there a resource to understand the manual method before learning ARGUS?
Yes. The original post titled “Understanding Leases: Office Buildings – Part 2” explains manual gross-up calculations using a historical example. Reviewing that post helps clarify how ARGUS adapts the process for forecasting.
