4-6 Campbells Meadow Flashcards
Talk me through your valuation of 4-6 Campbells Meadow.
- It was a valuation of a purpose built office building located out of the town centre for a potential acquisition.
- My client required a valuation for the Market Value and Market Rent therefore I used the comparable method to assess the Market Rent and then the investment method using the term and reversion technique to assess the Market Value.
- I established from comparable evidence that rents were at £11 per square foot and yields were at 8%.
- I applied a rate of £11 per Sq.ft to the subject property, however I adjusted the yield to 8.5% to reflect the additional risk associated with void property.
- I capitalised the notional rent in perpetuity, but deferred it for 9 months to account for a void period and tenant incentive.
Tell me about your comparable analysis?
The best comparable I found and one I applied the most weighting to, was a new letting for an identical property on the same estate with the same construction, use, specification and layout, which achieved £11 per sq.ft.
I also had regard to converted period properties in the town centre due to a lack of modern out of town centre offices. These ranged between £6 - £11.50 per sq.ft, however they do not benefit from, however they do not benefit from the same specification or flexible floor spaces as modern out of town centre offices.
Tell me about your yield analysis?
The property was vacant and therefore I capitalised a notional rent in perpetuity but deferred to account for a tenant incentive.
I established from comparable evidence that yields for modern out of town centre offices were at 8%. However I adjusted this to 8.5% to account for the additional risk associated with empty property.
How did you establish the appropriate all risk yield?
It was calculated by dividing the rent by the purchase price from comparable evidence.
Was it NIY or GIY?
NIY
What is the difference between NIY and GIY?
Costs are added to the purchase price on a NIY which results in a lower yield.
How did you analyse the rents?
On a per Sq.ft basis
How else could you analyse the rents?
Net effective basis - taking away the value of the tenant incentive from the value of the term and then dividing by the number of years term certain.
How else could you allow for a tenant incentive in a valuation?
By capitalising a net effective rent.
What was the hierarchy of evidence?
The valuation pre dated the RICS Guidance Note on Comparable Transactions, so my Hierarchy of Evidence was
- New Lettings
- Lease Renewals
- Rent Reviews
Others include
- Independent Expert
- Opinion
- Arbitration
- Quoting Rents
Other than straight line method, how else could you calculate the net effective rent?
Could have used a time weighted approach using a yield to take into account the fact money discounts overtime.
How does the time weighted approach work?
- Capitalise the headline rent for the term certain but deferring it by the length of the incentive at a discount rate to ascertain the present value of the headline rent.
- Divide the present value of the headline rent by the discount rate for the term certain.
Was there any costs associated with this?
Yes - stamp duty legal fees which were estimated at 5%.
How long did you defer the income for?
9 months - 6 months to relet the property and 3 months for a tenant incentive.
Why did you defer the notional income rather than capitalising on a net effective basis?
I was unable to verify the value of any incentive within the comparable evidence.
