LINE ITEMS (Commercial)

Line Items Section & Tabs

Keyboard shortcut: Ctrl + Alt + L

The Line Items section is where line item records for a property are created, defined and edited. This section is used for the input of all miscellaneous revenues (not sourced from a tenant record entered on the Rent Roll), reimbursable & non-reimbursable property expenses, and building capital.

Article contents:

• Line Item Tabs
• Input Types

Line Item Tabs

Keyboard shortcut: Ctrl + Alt + L

Ctrl + Alt displays the numeric keyboard shortcut.

• All tab displays all line item types: Misc Income, Expenses (recoverable), Expenses: Non-Recoverable, and Building Capital. "All" types can be added, edited, or deleted on this tab. The All tab is included as an expedite if the user wants to perform all Line Item data entry from a single tab rather than from multiple tabs. Line Items appearing on the All tab will be grouped in the following order by Line Item Type:
  1. Misc. Income
  2. Expense
  3. Expense: Non-Recov
  4. Building Capital
• Misc Income tab is used to input revenue not sourced from a tenant record on the Rent Roll tab.
• Expense tab is used to input expenses that are recoverable from tenants and are therefore available for building Recovery Pools; such expenses are subtracted from total revenue to calculate Net Operating Income.
• Expense: Non-Recov tab is used to input expenses that are not recoverable from tenants and are therefore not available for building Recovery Pools; such expenses are subtracted from total revenue to calculate Net Operating Income.
• Building Capital tab is used to input building level capital expenditures and/or capital reserves. Building Capital items are below the Net Operating Income line and are subtracted from Net Operating Income to calculate Net Cash Flow.

Note: All Line Items section tabs have the same functionalities and specifications.

Code is the required account number that has a 20 character maximum and does not accept commas or asterisks. All Line Item codes must be unique. A property calculation will not be allowed if any Line Item codes are duplicated.

Name is an optional description with a 50 character maximum. Although optional, the Line Item Name is the description that appears on the Cash Flow report when the Line Item Display is set to "As Entered".

Line Item Type is a drop-down menu of types that include: Misc. Income, Expense, Expense: Non-Recov, Building Capital. This column defaults to "Expense" on the All tab, and may be edited; all other Line Item section tabs default to the unique line item type being entered.

Cash Flow check box indicates whether the line item will affect a property’s cash flow. If checked (the default), the line item will affect the property’s cash flow and if unchecked, the line item will not affect cash flow. A line item will typically be unchecked (i) for expenses that are necessary to build a recovery pool but do not have a direct cash flow impact (e.g., amortization of capital expenditures); or (ii) for Line Items that reflect subaccounts of main accounts, whereby the subaccounts are aggregated into the main account via the use of the "% of Line" Input Type (see below) and only the main account is selected for inclusion in the property's cash flow.

Input Type - See "Line Item Input Types" below.

Cap & Floor

Cap represents a maximum amount for the line item record. Floor represents a minimum amount for the line item record. Click the applicable Cap or Floor button to open the pop-up modal window for data entry.

Type option includes only one selection:

• Amt - Enter value in Monthly Amt field.

Monthly Amt is the amount of cap or floor expressed on a monthly basis as of the Analysis Begin date.

Inflation is a drop-down menu of named item expedites created and defined in the Property Market section on the Inflation tab. Inflation is used if the cap or floor increases over time.

Cap Example

A blue dot appears when a Cap or Floor is present.

To remove an existing Cap or Floor record, click the "Clear" button located in the upper right hand side of the applicable screen.

Use Case Examples for Cap & Floor:

• On occasion, a management fee might be calculated as a specified percentage of EGR with a minimum monthly amount (e.g., 3% of EGR not less than $5,000/month). In this case, the management fee line item would be set up with a floor to reflect the monthly minimum.
• Although a lease with a cap on controllable expenses would typically be set up as a Recovery Pool, the controllable expenses could be set up using % of Line Item input (see below) to aggregate the controllable expenses and the cap would be used to identify the maximum amount.

Notes is used to enter a note for each record on the Line Items tab.

Click the the "Notes" button to open the pop-up modal window. The Notes window displays the Line Item code.

Enter text and click the "X" button to close the window and save the note. A blue dot appears on the Notes button when a note exists.

To remove an existing Note, click the "Clear" button located in the upper right hand side of the screen.

Note: For organizations with Asset Management functionality, the Line Items screen will include an additional field for Account Number. The user must assign an account number from the Chart of Accounts linked to the property for each Line Item entered.

Line Item Input Types

Input Types are input methods by which line item detail will be entered.

Input Type options include:

• Amount
• Amt/Area
• % EGR
• % of Line
• % Tenant Revenue
• Detailed
• Detailed Per Area
• Detailed % of Line Item
• Prop 13 Tax

Press the "Enter" button to open the carousel containing the Line Item input types.

Amount

Amount is used to enter a whole amount that may be increased by a defined inflation rate at set intervals.

Amt is the amount of the line item as of the Analysis Begin date. The amount entered here will be interpreted based on the assigned Amt Type.

Amt Type options include:

• Per Mo is Amt value interpreted on a monthly basis.
• Per Yr is Amt value interpreted on an annual basis.

Inflation is a drop-down menu of named item expedites created and defined in the Property Market section on the Inflation tab. Inflation defines how the line item Amt will grow. Defaults are based on the tab in which the line item was created (i.e., *Expense on the All, Expense, and Expense: Non-Recov tabs, *MiscInc on the Misc Income tab, and *BldgCapital on the Building Capital tab). Inflation will occur based upon the Effective Month for the assigned Inflation as defined in the Property Market section on the Inflation tab.

Amount Line Item

Amt/Area

Amt/Area is used to enter an amount expressed on a per area basis that is multiplied by a defined Area Measure and may be increased by a defined inflation rate at set intervals.

Amt is the amount per area of the line item as of the Analysis Begin date. The amount entered here will be interpreted based on the assigned Amt Type.

Amt Type options include:

• Per Mo is the Amt value interpreted on a per area, monthly basis.
• Per Yr is the Amt value interpreted on a per area, annual basis.

Inflation is a drop-down menu of named item expedites created and defined in the Property Market section on the Inflation tab. Inflation defines how the line item Amt will grow.

• Defaults are based on the tab in which the line item was created (i.e., *Expense on the All, Expense, and Expense: Non-Recov tabs, *MiscInc on the Misc Income tab, and *BldgCapital on the Building Capital tab). Inflation will occur based upon the Effective Month for the assigned Inflation as defined in the Property Market section on the Inflation tab.

Area Measure is a drop-down menu of named items created and defined on the Area Measures tab, accessible from both the Property and Recoveries sections. An area measure is the measurement of space by which the Amt value is multiplied to determine the value for the line item.

Use Case: Amt/Area may be used to model variable expenses, whereby an expense rate per area is multiplied by an occupied area measure to determine the total amount of the expense.

Amt/Area Line Item

% EGR

% EGR is used to multiply Effective Gross Revenue by a single percentage.

Percent is the percentage by which Effective Gross Revenue will be multiplied to determine the line item value.

Use Case: % EGR is typically used to model management fees expressed as a percentage of Effective Gross Revenue.

% EGR Line Item

% Line Item

% Line Item is used to create a line item that is a percentage of:

• (i) one or more existing line items
• (ii) one or more system line items (line items that are not input by the user but rather auto-defined by rDCF, such as Rent, Recoveries, EGR, etc.)
• a combination of (i) and (ii)

Line Item Type is a drop-down menu that filters the Line Item list.

• All lists all Line Item types, both user input and system line items.
• Building Capital, Expense, Expense Non-Recov, and Misc. Income lists the existing user input line items from the corresponding tab.
• System Line Items lists those line items that are auto-defined by rDCF.

Search is a text search box that filters the Line Item list.

Display allows for additional filtering of the Line Item list. Options include:

• All displays all Line Items for the selected Line Item Type.
• Non-zero displays all Line Items for the selected Line Item Type for which the Percent column is not 0 or null.

Line Item is a list of existing Line Items filtered by the selected Line Item Type, Display and/or search. Each line item is displayed in the following fashion: <Line Item Type>:<Code or System Line Item Code>-<Name>.

Percent is the percentage value to be applied to each of the selected Line Items.

To sort the list of Line Items alphabetically in descending order, click the double arrows; to re-sort the list alphabetically in ascending order, click the double arrows once again.

% of Line

% Tenant Revenue

% Tenant Revenue is used to create a line item that is a single percentage of selected revenues for selected tenants.

Percent is the percentage value to be applied to the selected revenues for selected tenants.

Revenue (type) reflects the component of tenant revenue against which the Percent will be applied. Revenue type options are:

• Abatements 
• Abatemeants - Recovery
• Abatements - Rent
• Absorption & Turnover Vacancy 
• Leasing Commission
• Misc. Revenue  
• Other Capital 
• Percentage Rent 
• Potential Rent 
• Potential Rent + Recoveries 
• Potential Rent + Sched. Recoveries 
• Potential Revenue
• Potential Revenue w/Sched. Recoveries 
• Scheduled Recoveries 
• Scheduled Rent
• Scheduled Rent + Recoveries 
• Scheduled Revenue 
• Tenant Capital 
• Tenant Improvement 

Select the tenants whose revenue will be included in the computation of the line item.

• Check the boxes to include individual tenants to be included in the computation.
• Uncheck the boxes to exclude specific individual tenants from the computation. 
• Select all tenants by checking the box to the left of the Search field.
• Deselect all tenants by unchecking the box to the left of the Search field.
• To view all tenants available for selection, uncheck the "Show Selected" box.
• To view only selected tenants, check the "Show Selected" box.
• To sort the list alphabetically in ascending order, click the double arrows (the double arrow icon will change to a single arrow pointing downward); to re-sort the list alphabetically in descending order, click the single arrow pointing downward (the single arrow pointing downward icon will change to a single arrow pointing upward).

% Tenant Revenue

Detailed

Detailed is used to enter line items on a monthly basis for a user-specified number of years, after which inflation will commence (unless the "Inflate From Analysis Begin Date" box has been checked as described below).

Years of Detailed Input is used to enter the number of years (default = 2) of detailed entry before inflation takes effect (unless the "Inflate From Analysis Begin Date" box has been checked as described below). Click within the cell to activate, enter the number of years of detailed input, and Tab out or mouse click into another cell. A column will be enabled for each year of detailed input, with each column allowing input on a monthly basis. 

Note: The maximum number of years for Detailed entry is equal to the Term specified on the Property Settings tab in the Property section plus two years.

Inflate From Analysis Begin Date determines whether the detailed amounts entered will be subject to inflation from the Analysis Begin Date using the inflation rate defined in the adjacent Inflation field. If the box is unchecked, the detailed amounts entered will be reflected in each month/year of the analysis at the exact amounts entered on this screen. If the box is checked, the detailed amounts entered will be inflated from the Analysis Begin Date utilizing the inflation rate defined in the adjacent Inflation field.

Inflation is a drop-down menu of named item expedites created and defined in the Property Market section on the Inflation tab. Line Item inflation will commence in the year subsequent to the last year entered in the detailed line item screen. 

Defaults for Inflation are based on the tab in which the line item was created (i.e., *Expense on the All, Expense, and Expense: Non-Recov tabs, *MiscInc on the Misc Income tab, and *BldgCapital on the Building Capital tab). Inflation will occur based upon the Effective Month for the assigned Inflation as defined in the Property Market section on the Inflation tab.

Note: Inflation will inflate the hard coded amounts entered in the final year of detailed input, maintaining monthly integrity. For example, if the final year of Detailed input is Year 5 and amounts are entered in Months 3, 6, 9 and 12 of Year 5, the Year 5 amounts will be subject to inflation and will appear in subsequent years in Months 3, 6, 9, and 12. 

Hint: If you want to "stop" a Detailed input (i.e., make the input zero after a certain number of years), you must add one additional year with all monthly entries of zero. For example, if you want 3 years of Detailed input with zeros thereafter, select 4 years of Detailed input and enter all zeros for Year 4.

Enter monthly amounts for the line item. This may be accomplished a number of ways:

1. Input an amount for each month within the grid. The Total field will reflect the annual summation of the monthly amounts entered.
2. Input an amount in the Total field. The monthly amounts in each month for that year will be auto-filled by dividing the annual amount by 12.
3. Input an amount for any month and click the down arrow button to the right of the amount entered or use the hot key combination Ctrl + Shift + X. The monthly amount entered will auto-fill to all subsequent months within that year.
4. Populate the amounts for one or more years and click the right arrow button to the right of the annual total for the last year populated or use the hot key combination Ctrl + Shift + X. The annual amounts, with monthly detail, will auto-fill for all subsequent years. For example, if 3 years of detailed input are desired, Year 1 is filled out, and if the arrow button to the right of the annual total for Year 1 is clicked, Years 2 & 3 will auto-fill with the exact annual and monthly detail as Year 1.

Detailed

Detailed Per Area

Detailed per Area is used to enter line items on a monthly per area basis for a user-specified number of years, after which inflation will commence (unless the "Inflate From Analysis Begin Date" box has been checked as described below). The per area amounts entered are multiplied by an Area Measure as defined by the user. 

This Input Type works in an identical fashion to Detailed (see "Detailed" above) with the following two exceptions: 

1. Monthly amounts are entered as amounts per area rather than as whole dollar amounts.
2. There is an additional field for Area Measure, by which the amount per area is multiplied. Area Measure is a drop-down menu of named items created and defined on the Area Measure tab, accessible from both the Property and Recoveries sections.

Detailed Per Area

Detailed % of Line

Detailed % of Line is used to create a line item that is a changing percentage (either monthly or annually) of one existing line item (exclusive of System Line Items).

Year of Detailed Input is used to enter the number of years (default = 2) for which a detailed percentage will be entered. Click within the cell to activate, enter the number of years of detailed input and Tab out or mouse click into another cell. A column will be enabled for each year of detailed input, with each column allowing input on a monthly basis. 

Note: The maximum number of years for detailed entry is equal to the Term specified on the Property Settings tab in the Property section plus two years.

Select one existing Line Item from the drop-down menu for which a detailed percentage will be applied.

Enter percentage values. Each monthly percentage will be multiplied by the corresponding monthly line item amount. Therefore, the annual percentage equivalent should be entered within each monthly field (e.g., for 3%, "3" would be entered for every month rather than “.25”). Data entry may be accomplished in a number of ways:

1. Input a percentage for each month within the grid. The Average field will reflect the annual average of the monthly percentages entered.
2. Input a percentage in the Average field. The monthly percentages for that year will be auto-filled with the same percentage as the annual Average percentage entered.
3. Input a percentage for any month and click the down arrow button to the right of the percentage entered or use the hot key combination Ctrl + Shift + X. The monthly percentage entered will auto-fill to all subsequent months within that year.
4. Populate the percentages for one or more years and click the right arrow button to the right of the Average for the last year populated or use the hot key combination Ctrl + Shift + X. The annual average percentages, with monthly detail, will auto-fill for all subsequent years. For example, if 3 years of detailed input are desired, and Year 1 is filled out, if the right arrow button to the right of the annual total for Year 1 is clicked, Years 2 & 3 will auto-fill with the exact annual and monthly detail as Year 1.

Hint: If you want to stop a Detailed % Of Line input (i.e., make the percentage input zero after a certain number of years), you must add one additional year with all monthly entries of zero. For example, if you want 3 years of detailed input with zeros thereafter, select 4 Years of Detailed Input and enter all zeros for Year 4.

Note: The Line Item field only allows for the selection of one previously created Line Item. System Line Items are not available and existing Line Items may not be combined here (unlike the functionality for % Line Item entries). If you would like to create a Detailed % Of Line Item using System Line Items or a combination of existing Line Items: 

1. Create a % of Line Item that does not impact cash flow utilizing the proper percentage of the System Line Item(s) and/or existing Line Item(s) (this will typically be 100%).
2. Select the newly created Line Item in the "Line Item" field on the Detailed % of Line Item screen.

Example: The management fee for a building is projected to be 2% of EGR in Years 1 and 2 of the analysis, changing to 3% of EGR in Year 3 and thereafter. Steps to create this are as follows:

1. Add a Line Item that does not impact cash flow using the "% Line Item" carousel state that is equal to 100% of EGR.
2. Add a second Line Item that does impact cash flow using the "Detailed % of Line Item" carousel state. Enter "3" for Years of Detailed Input, select the Line Item created in step 1 from the "Line Item" field drop-down menu, and enter "2" in every month for Years 1 and 2 and "3" in every month in Year 3.

Detailed % of Line

Prop 13 Tax

Prop 13 Tax is used to establish real estate tax expense amounts for (i) year 1 of the rDCF analysis based upon the Analysis Begin Date entered in the Property section on the Property Settings tab; and (ii) the year subsequent to the Valuation Term (i.e., hold period) as entered in the Property section on the Valuation Settings tab (this year is often used to calculate the reversion value of a property included in the stream of cash flows that is discounted to arrive at such property's value).

Proposition 13 applies only to properties located in California and was passed as an amendment to the California Constitution in June 1978.  The law established the concepts of a base year value for property tax assessments, and limitations on the tax rate and assessment increase for real property. Under Prop 13, all real property has base year values that are established based upon a reassessment that occurs when there is a change in ownership (or for new construction, as of the date of completion), a cap on increases in the assessed value of no greater than 2% each year (until there is another change in ownership), and a limit on property taxes equal to 1% of the assessed value (plus additional voter-approved taxes) (SOURCE: Santa Clara County Office of the Assessor website).

The implication of this law for discounted cash flow analysis and valuation is threefold:

1. For a property transaction (acquisition or sale), the real estate tax expense needs to be re-set in year one of the new owner's hold period based upon the valuation of the property as of the date of ownership change. If the valuation is based upon the discounting of future cash flows, then the real estate tax expense also needs to be re-set in the year following the hold period to calculate the reversion value of the property. Similarly, because an appraisal assumes a market value transaction, similar real estate tax resets need to occur.
2. For the valuation of a property that is not part of a transaction (i.e., for asset management purposes), although the real estate tax expense does not need to be re-set in year one of the hold period, the expense does need to be re-set in the year following the hold period to calculate the reversion value of the property.
3. The real estate tax expense inflation rate should be set at 2% for the entirety of the hold period.

Year 1 Amt Type defines how the real estate tax expense in year 1 will be determined. The available drop-down selections are:

• Valuation Scenario: The year 1 real estate tax expense will be determined by using the valuation assumptions as defined in the "Valuation Scenario" field, and multiplying the resultant value by the percentage entered in the % of Value field. If the Valuation Type for the applicable Valuation Scenario is (i) "DCF", then the resultant value will be calculated using the discounted cash flow methodology; (ii) "Direct Cap", then the resultant value will be calculated using the direct capitalization method; (iii) "Specified Price", then the resultant value will be the entered price.
• Amount: The year 1 real estate tax expense amount is entered by the user.

Note: For either Year 1 Amt Type selection, if the Valuation Type is "DCF" or "Specified Price", then a reversion value still needs to be calculated for the year following the hold period (i.e., the reversion year). This value is calculated using (i) the valuation settings entered for the valuation scenario as selected in the "Valuation Scenario" field if the Year 1 Amt Type is set to "Valuation Scenario"; or (ii) the valuation settings entered for the default valuation scenario as determined in the Property section on the Valuation Settings tab if the Year 1 Amt Type is set to "Amount" (even if entered as a valuation setting, cost of sales are excluded from the reversion value in the determination of real estate taxes for the year subsequent to the hold period). If the Valuation Type is "Direct Cap", then no reversion value is calculated for the reversion year and the real estate tax amount continues to increase by the rate entered in the "Inflation" field (see below).

Amt is used to enter the year 1 real estate tax expense if the Year 1 Amt Type is set to "Amount" (if the Year 1 Amt Type is set to "Valuation Scenario" this field is not applicable). 

% of Value is multiplied by the (i) initial property valuation when the Year 1 Amt Type is set to "Valuation Scenario"; and (ii) the reversion value to establish the real estate tax expense amounts in (a) year 1 of the rDCF analysis period; and (b) the year following the assumed hold period, respectively.

Valuation Scenario is a drop-down of the valuation scenarios entered in the Property section on the Valuation Settings tab and is used to define the valuation settings used to determine the year 1 value and the reversion value when the Year 1 Amt Type is set to "Valuation Scenario" (if the Year 1 Amt Type is set to "Amount", this field is not applicable).

Inflation is a drop-down menu of named item expedites created and defined in the Property Market section on the Inflation tab. Inflation defines how the Prop 13 expense will grow (as noted above, per California law, this inflation is typically set to 2%).

Helpful Hint: Regardless of the Report Begin Date as entered in the Property section on the Property Settings tab or the Valuation Date as entered in the Property section on the Valuation Settings tab, the calculated year 1 expense will always be assumed to occur in year 1 of the analysis (i.e., the first year beginning on the Analysis Begin Date). If the selected Valuation Scenario uses a different Valuation Date than the Analysis Begin Date, a validation warning will appear. If you wish to use such different Valuation Date, it is recommended that the Inflation applied to real estate taxes be changed to detailed input with 0% growth from the Analysis Begin Date to the Valuation Date to insure that the calculated real estate tax amount for year 1 applies to the first year of the valuation period.

Warning: If an Underwriting Workbook is run for a property that uses Prop 13 Tax to establish the real estate tax expense, and the default valuation assumptions (i.e., cap rate, discount rate, hold period) are subsequently changed within such Underwriting Workbook, the real estate tax expense will not change to reflect the valuation assumption changes. Stated differently, the real estate tax expense in the Underwriting Workbook does not dynamically change as changes are made to the valuation assumptions in the workbook. To see the impact of valuation changes on the real estate tax expense, the user must change the valuation assumptions directly within rDCF on the Valuation Settings tab, recalculate the file, and run the Underwriting Workbook once again.

Prop 13 Tax