Case Study

Question 1

You refence the sale of the subject reporting an NIY of 6.57%, your valuation has a NIY of 5.59%… why is this different

Answer 1

The reported yield in the sale is a reflection of rent passing capitalised on an initial basis to get the sale price.
My NIY is a reflection of my equivalent yield I adopted using the hardcore method of valuation.

Question 2

3 Cransley park is a prime asset how was the letting relevant in the case of your valuation? given yours is a secondary asset?

Answer 2

In valuation which typically used prime rents and yields as a benchmark for the market. In this case the property reflected prime rents of similar sized asset, I could then work back of this OU agreement of £10psf

Question 3

What is the red book?

Answer 3

It provides mandatory and best practice guidance in order to encourage a standardised approach to reporting valuations to clients through setting out minimum requirements for reports . It also provides guidance as to how to approach valuations for different purposes.

Question 4

Structure of the red book

Answer 4

Introduction
Glossary
PS - professional standards
VPS - valuation performance standards
VPGA - Valuation practices guidance
IVS - international valuation standards

Question 5

What was the eave height and how did you measure it?

Answer 5

5.8m - floor to the underside of the haunch

Question 6

What is a special assumption

Answer 6

Something which we know to not be true, however assume to be true for the purposes of valuation

Question 7

Where must we report Special Assumptions?

Answer 7

Clearly in the terms of engagement, of what SA we have adopted

Question 8

What version is the most recent red book when is the next one due?

Answer 8

Jan 2022
Q1 2024

Question 9

what was the site coverage of the property? was this normal ?

Answer 9

site coverage was 41% which was in line with industry standards- i did not have to make an allowance for overage land

Question 10

You mention that rent have increase significantly seems odd given the most recent mini budget

Answer 10

I valued the property objectively based off the information I collated and information provided to me. Narrow availability and good demand was present in the occupier market when I was valuing the property. The market of kettering may had been an anomaly against the broader UK market.

Question 11

Were you involved in the conflict of interest, how did you ensure you were not conflicted?

Answer 11

A conflict of interest check had been carried out on my companies Valuation Workflow System, which picks up all previous and current instruction regarding the parties involved and the subject property. We identified that my company had been previously instructed by the borrower to provide building consultancy services. It was determined that this did not from a conflict.

Question 12

What is a special assumption? What is an assumption?

Answer 12

A special assumption is something which we know is not true however assume to be true for the purposes of valuation.
An assumption is something that we do not know to be true, but is reasonable to be deemed true for the purposes of valuation

Question 13

Did you consider the possibility of the building containing asbestos?
How was it managed ?
did you consider this in your valuation?

Answer 13

Q1) Given the age of construction circa 1980s we considered the likelihood of asbestos to be present to be high. This was confirmed that by building surveying report from Hollis which detailed that findings of a previous demolition and refurbishment survey taken for an old refurbishment that took place in Unit A. No Asbestos was identified in the samples taken however, there are three locations of presumed asbestos in the Storage Heaters and the main Electricity supply

Q2) we understood from our enquirers with the tenants that there was an active asbestos management plan in place, areas where the presumed asbestos was were marked with stickers and access to areas were locked.

Q3) Given that we were valuing on the continued use of the property, we did not reflect asbestos in our valuation.

Question 14

What did your due diligence enquiries reveal?

Answer 14

Our DD revealed that there was no material impact on the value of the property.
Flood risk Z1
EPC compliant
Planning - located in a safeguarded employment area

Question 15

Common defects associated with industrial assets?

Answer 15

Impact damage to the elevations or concrete slab flooring
Corrosion to the elevations or roof
Units typically have a pitched roof over each bay section. Where the roof sections meet, they form a central valley gutter this can get blocked and result in leaking.

Question 16

How did you consider the leak in your valuation?

Answer 16

Given that the occupiers were on FRI leases this was determined to be recoverable and so was not reflected in our valuation.

Question 17

What is a reasonable tolerance? What would you do if your measurements were outside of the reasonable tolerance?

Answer 17

It would depend on the property size, in this case I would want a my measurements to be within a range of plus or minus 0.5%. Our measurement were 0.2%

Question 18

Did the tenant fit-out have an effect on your valuation?

Answer 18

Both units were let on FRI terms with full restatement provision detailed in there lease. We were not provided with the agreed licence to alterations and there for for the purposes of the valuation we assumed that these had been agreed and that each tenant would re instate the premises and the end of their lease terms.

Question 19

What were the lease provisions regarding re-instatement?

Answer 19

To reinstate the premise

Question 20

What is the RICS Hierarchy of Evidence?

Answer 20

The RICS hierarchy of evidence is detailed in the RICS guidance note comparable evidence in real estate valuation.
It provides guidance on the degree of weight we should place on comparables depend on whether they are in catagory A,B or C
Catagory A: all types of relevant transactional evidence
B: Data which can provide guidance (published indices or older evidence)
C: other property types an locations other background data of different asset classes

Question 21

What sort of things did you consider when comparing the evidence to the subject property?

Answer 21

Eave height
Yard depth
loading provisions
Location
Condition
SPECIFCATION

Question 22

How much of a discount would you make in regard to quantum? (Mention discussions with agents)

Answer 22

I spoke with agents letting the propertes and they suggested that as units approach 15,000 rent would drop from £7.50 to 7 - 7.25 per sq ft.

Question 23

Your valuation reflects a higher NIY than this comp. What makes this comp a better investment than the subject?

Answer 23

Very strong covenant and highly revisionary let of £4.50 per sq ft which the agent commented was well below MR and better asset with superior eaves height, yard depth and loading door provision

Question 24

What made this (Daniels way) comp inferior to the subject? It has a much longer unexpired term.

Answer 24

A long term yes but an inferior building in a compromised location, with regards to its accessibility either A611 through Nottingham to get to M1 or 7 miles north to get to M1 via sherwood business park. The property also didn’t have the same revisionary potential

Question 25

What works was the borrower planning on undertaking? How have you changed your assessment of the property based on this planned investment?

Answer 25

We did not receive an exact break down from the borrower regarding the works they were seeking to undertake. However, we understand that they want to improve the quality of the space, with a full refurbishment to the office component and overall improvements to the EPC rating. I cross referenced the suggested capex of £15 per sq ft with a member in our building consultancy team that the amount of capex reflected the works they were seeking to carry out. We reflected the CAPEX as a day 1 expenditure as is standard in my company.

Question 26

Why is this NIY different to the sale above?

Answer 26

Numerous reasons, firstly our NIY reflects the capital expenditure assumption of our valuation, moreover, due to the transaction occurring off the market we were of the opinion that the sale price was at a discount due to absence of marketing and due to it being part of the portfolio it was likely to be subject to a degree of bulk buying economies of scale.

Question 27

Why did you provide a SWOT analysis?

Answer 27

VPGA2 requirement It is method of delivering reasoned advise to our a client and is a requirement of redbook for loan security purposes.

Question 28

Tell me more about this, why is there an emphasis on interest cover ratios and loan to value?

Answer 28

With current rises in the base rates finance rates have increased and lenders now have an additional emphases on the assets ability to service debt payments. The ratio of income received to the cost of debt payments reflected in the ICR. The extent of the debt payment is down to the amount borrowed and the interest rates negotiated.

Question 29

What made the property suitable for loan security? Do you know the terms of the loan?

Answer 29

I was not provided with the loan terms on this occasion and therefore in line with our terms of engagement which stated that we would talk generally regarding each properties suitability for loan secuirty. I.E ensuring that there is no material effect on value shown from our DD or that the property is lettable and able to be income producing in order to service debt payments that would need to be paid by the borrower.

Question 30

What is basic racking

Answer 30

racking or industrial shelving, not secured in to the slab flooring

Question 31

was the racking not being secured a safety concern

Answer 31

SEMA (storage equipment manufactures association) guidance that best practice is that racking should always be secured in to the floor, however if there are no moving vehicals or machinery which can knock the racking over then fixtures are not required.