Often times, Cap Ex is not part of the NOI calculation. That, in and of itself, does not make it right as Cap Ex is painted w/ a very broad brush anyway. Most underwritings account for Cap Ex to a degree BELOW the NOI line with the inclusion of Replacements & Reserves. NOI as calculated by a listing agent is done so with his client's, the seller, best interests in mind. Rightfully so, but to account for at least some Cap Ex looking forward, I am staunchly of the opinion that Cap Ex be addressed to a small degree by including Reserves ABOVE the NOI line. A per unit number seems to be adequate, larger for old properties, smaller for newer properties. But I believe they belong above the NOI line to be sure. $250/unit give or take works most of the time. Will the building need new carpet tomorrow. No. Will it someday ? Yes. And so it goes w/ appliances, counter tops, cabinets, bathrooms, windows, roof, parking lot, brick repointing, etc., etc. And those funds need to be accounted for to a degree and, in my view, included in the operating numbers by putting Reserves above the NOI line. Don't anticipate accounting for all your Cap Ex in NOI, but do address it to some degree nonetheless.
Dec 3, 2012