Understanding Escalation Indices

The first step in the escalation process is to identify and set up the escalation indices the system uses to calculate the escalation amount. Use the Escalation Indices program (P1550) to specify the index, the calendar year for which the index applies, and the monthly index amounts. The system uses the periodic change in the amounts specified to derive a rate by which to calculate the escalation amounts.

This table provides additional information about the most commonly used indices:

Index	Description
Consumer Price Index (CPI)	The CPI measures the general increase in consumer prices (inflation) at the city, state, regional, and national levels. For example, suppose that the index for January 2007 is 169.24 and the index for January 2008 is 178.38. Inflation for 2007 is the percent increase between the two indices, which is 5.4 percent. The U.S. government publishes the CPI monthly, with a three-month lag time. For most metropolitan areas, the regional index is published every six months.
Porter's Wage Index	The Porter's Wage is a special index that has been used historically in the metropolitan area of New York. This index is based on the Porter's Union Wage contract, which consists of base rates and fringe benefits that are renegotiated periodically by the union. Leases set up for a building can relate to the sum of a specific combination of these rates. The comparative increase in this sum from year to year, which can be expressed as a rate per square foot, determines the increase in rent. Note the following: Although this index is becoming obsolete, many older leases still include this term. You must use a method outside of the system to calculate the sum of the base and fringe rates and to establish an index that reflects this amount for each year. Because each building might relate to a unique combination, you might have to maintain more than one Porter's Wage index. (Release 9.2 Update) You cannot use the Porter's Wage Index when setting up escalations for non-property leased assets on a lessee lease. The Porter's Wage Index uses square footage in the calculation, and that information is not available for non-property assets.
User-Defined Index	User-defined indices can be set up to use some other criteria for increasing the rent. For example, you could escalate the rent of a building based on an increase in the operating costs, or you could set up an index that is based on the prime rate or other treasury note rates.

Index

Description

Consumer Price Index (CPI)

The CPI measures the general increase in consumer prices (inflation) at the city, state, regional, and national levels. For example, suppose that the index for January 2007 is 169.24 and the index for January 2008 is 178.38. Inflation for 2007 is the percent increase between the two indices, which is 5.4 percent.

The U.S. government publishes the CPI monthly, with a three-month lag time. For most metropolitan areas, the regional index is published every six months.

Porter's Wage Index

The Porter's Wage is a special index that has been used historically in the metropolitan area of New York. This index is based on the Porter's Union Wage contract, which consists of base rates and fringe benefits that are renegotiated periodically by the union.

Leases set up for a building can relate to the sum of a specific combination of these rates. The comparative increase in this sum from year to year, which can be expressed as a rate per square foot, determines the increase in rent.

Note the following:

Although this index is becoming obsolete, many older leases still include this term.
You must use a method outside of the system to calculate the sum of the base and fringe rates and to establish an index that reflects this amount for each year.
Because each building might relate to a unique combination, you might have to maintain more than one Porter's Wage index.

(Release 9.2 Update) You cannot use the Porter's Wage Index when setting up escalations for non-property leased assets on a lessee lease. The Porter's Wage Index uses square footage in the calculation, and that information is not available for non-property assets.

User-Defined Index

User-defined indices can be set up to use some other criteria for increasing the rent. For example, you could escalate the rent of a building based on an increase in the operating costs, or you could set up an index that is based on the prime rate or other treasury note rates.

The system stores escalation index information in the Escalation Index Master table (F1550).

As an alternative to reviewing the escalation indices online, you can print the Escalation Indices Listing report (R1550P).

See JD Edwards EnterpriseOne Real Estate Management Reports: A to Z.