deduct an estimate of future repair costs, called the reserves for replacement.
These reserves include, but are not limited to, any major repair to the structure
that is the landlord's responsibility. For an office building, this will
usually include any repairs to the mechanicals (heating and air, hot water,
ventilation), the structure itself, and particularly the roof, which will generally
need to be replaced on a fairly well-defined schedule. Stand-alone,
single-tenant buildings such as warehouses, big-box retails, and stand-alone
office buildings are usually rented on a "net" basis. The landlord provides
the structure, and the tenant is responsible for all expenses including such
reserves for replacement. Often, there is some negotiation, and any major
structural replacement, major mechanical replacement, or roof replacement
may be left to the landlord on a case-by-case basis.
Long-term office rents usually have a provision for tenant improvements
(e.g., paint, carpet, wall coverings, even new kitchens and spedalty or custom
hardware) that are specific to the tenant spaces themselves. At the lease
inception or renewal, these are usually negotiated on a tenant-by-tenant
basis. Tenant improvements can be quite costly-for a long-term lease with
a great tenant, it is not uncommon for a landlord to spend a year's gross rent
on tenant space improvements.
comprehensive guide is designed to demystify the auction process and help you make informed
decisions when purchasing a vehicle. With this guide we aim to equip you with the knowledge needed
to approach auctions with confidence and clarity. At Auction Finance, we are dedicated to supporting
you every step of the way. Our expertise in auction financing ensures that you have the financial backing
needed to secure the best deals on the market. We believe in making the auction process as smooth
and transparent as possible, so you can focus on finding the perfect vehicle for your needs.
WHERE DO AUCTION VEHICLES COME FROM?
1.1 Bank Vehicles
Repossessed cars from banks like ABSA, Standard Bank, MFC, WesBank, and IMAS Financial Services.
1.2 Fleet Replacements by Companies
Many vehicles at auctions come from companies replacing or downsizing their fleets. These vehicles are
often well-maintained, with full-service histories and consistent mileage records, as they are crucial for
business operations. These cars can be a good buy due to their typically honest mileage and upkeep.
1.3 Government Departments
Cars from municipalities, police, and other government departments are regularly auctioned off when
they are replaced with new models. These vehicles usually have a full-service history. While they can be
in good condition, it's important to do your homework before buying.
1.4 Trade-Ins and Private Sellers
Franchise dealerships often dispose of trade-ins that don’t fit their specific brand or vehicle lineup, and
these cars can end up at auctions. These vehicles can offer good value for buyers willing to do their
homework. Additionally, more private sellers are exploring auctions to sell their cars.
Accounting for tenant improvements is tricky. Generally accepted
accounting principles require that tenant improvements be capitalized and
amortized over the life of the lease. From a valuation perspective, prospective
tenant improvements can be treated as reductions in gross rents (thus prospectively
amortizing anticipated tenant improvement costs) or expensed.
For purposes of this exercise, I will assume tenant improvement costs and
leasing fees are already accounted for in the gross rent structure.
Now, going back to the expense ratio-an actual valuation will be much
more exacting about the expenses, breaking each one down into constituent
components and estimating future expenses for each category based on
market comparisons and best estimates from the developer. For an existing
building, actual historical expenses will be compared to market norms.
Common categories of expenses include, but are not limited to:
• Management fees
• Utilities
• Day-to-day maintenance
• Custodial and engineering services
• Property taxes
• Insurance
• Security services
• Reserves for replacement
