What does 'CapEx overrun' refer to in stress testing?

'CapEx overrun' specifically refers to the situation where actual capital expenditures exceed the budgeted or projected amount for a particular project or investment. In the context of stress testing, which often involves assessing the financial resilience of real estate investments under adverse conditions, understanding CapEx overruns is crucial. Exceeding budgeted capital expenditures can lead to liquidity issues and can significantly impact the overall financial performance of a property or portfolio, making it a critical factor in evaluating risk.

Evaluating the implications of CapEx overruns in stress testing allows financial analysts to ascertain how an investment would withstand unexpected increases in costs, ensuring a thorough risk assessment. This is particularly relevant when considering factors such as unforeseen repairs, required upgrades to meet regulatory standards, or changes in construction costs. Thus, identifying CapEx overruns helps in planning for financial stability in the face of fluctuating expenditures.