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Tilly Rees SoE > Case study > Flashcards

Case study Flashcards

1
Q

What was the Market Value and Yield?

A

£27,450,000 @ 5.25%
£164,000 per bed

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2
Q

Benchmark capital val;ues per bed?

A

£100,000 - £180,000

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3
Q

What was the valuation date?

A

30th May 2024

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4
Q

VP?

A

less £1m (capital deduction via income shortfall)

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5
Q

What was the owenrship of the property?

A

Freehold

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6
Q

What is the definition of market value?

A

The amount for which as asset or liability should be exchanged
- on a valuation date
- between a willing buyer and willing seller
- in an arms length transaction
- after property marketing
- where both parties have acting knowingly,
- prudently
- and without compulsion

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7
Q

How did you estimate that there were 20,060 that would require PBSA?

A
  • In house data that tracks student demand
  • Excludes those on year abroads, those that live at home
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8
Q

What was the purpose and basis of the valaution?

A

Purpose: Valaution for Secured Lending purposes
Market Value
Market Value on the special assumption of vacant possession

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9
Q

What was the reinstatement cost assessment?

A
  • The property has not been inspected by a suitably qualified building surveyor, nor have we carried out a full Reinstatement Cost Assessment.
  • For indicative purposes only we estimate that the reinstatement cost of the completed
  • property for fire insurance purposes would be in the region of £15,050,000 on a day one
  • basis, including fees but excluding VAT and inflation.
  • This estimate should not be used placing of insurance, for which a more detailed assessment would be required.
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10
Q

If Fair Value does it have to be in accordance with IFRS 13?

A

No would be stated by the client - they may do so in accordance with GAAP

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11
Q

How was it in line with Global Red Book?

A

PS 2 - Ethics, Competency and Objectivity
(incl. ToE)

VPS 1 - ToE

VPS 3 Reporting

VPS 4 - Bases of Value

VPGA 2 - Valuation for secured lending

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12
Q

What is included in VPS3 Reporting?

A
  • Purpose of valuation
  • Identification of assets to be valued
  • Basis of value
  • Valuation Date
  • Valuation figure
  • Date of valuation report
  • Ensured that the report was signed by an RICS Registered Valuer
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13
Q

As per VPGA 2 what else did you include in your report?

A
  1. Purpose and basis of valuation
  2. Suitability of the property as security for lending purposes
  3. Market conditions
  4. Sustainability considerations
  5. Independence - no previous involvement with the property or borrower for the last 2 years
  6. Reliance - those addressed in the report or parties with prior consent with a letter of reliance
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14
Q

What additional information is required for secured lending purposes when reporting?

A
  • Suitability for mortgages purposes
  • Disclose previous involvement in ToE
  • Valuation method and calculations
  • Recent transactions on property
  • Environmental considerations
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15
Q

How is it in line with the UK National Supplement?

A

UK VPGA 10
10.1 Application of RICS Valuation – Global Standards - correct use for PBSA
10.2 Independence, objectivity and conflicts of interest - acted as an external valuer
10.3 Instructions and disclosures - limitation of liability agreed and stated who can rely on the valuation
10.4 Reporting - suitability, sustainability & ESG
Regulatory requirements
Suitability for loan security
Extensions of validity and revaluations
Sustainability and ESG

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16
Q

What does UK VPGA 10 apply to?

A

For this purpose, the definition of commercial property includes ‘standard’ asset classes, operating assets, and residential assets that are considered to fall within the professional investment sector.

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17
Q

Was it not a conflict working for CBRE Loan Servcies?

A

No they are a separate legal entity

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18
Q

Where there any conflicts of interest?

A
  • Conflict of interest check on internal system
  • Never valued the property before
  • No conflict
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19
Q

What was included in the ToE?

A
  • Name and status of valuer
  • Asset
  • Purpose of valuation
  • Basis of value
  • Valuation date
  • Confirmation of no previous involvement
  • Fee basis
  • CHP
  • Limit on PII liability agreed (thw lower of 33% of MV or £40m in aggregate)
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20
Q

How did you ascertain that you were competent?

A
  • Regularly value PBSA
  • Peer reviewed work
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21
Q

If you did not feel competent to undertake the work what would you do?

A
  • Consider passing it to a colleague who was more competent
  • I could still help
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22
Q

What is the purpose of a ToE?

A
  • Esnures alignement with client and oursleves in the work to be undertaken
  • helps to avoid any disagreement
  • facilitate smooth business operations
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23
Q

What use class is PBSA?

A

Sui Generis
- treated as a one off each time

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24
Q

Can you describe the inspection?

A
  • external (any obvious defects)
  • locality
  • internal (defects & spec and amenity)
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25
Q

What basis of measurement did you use?

A

IPMS 3C residential

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26
Q

What is included in IPMS 3C residential?

A

Measurement of the area of exclusive occupation to the Internal Dominant Face

Excludes:
- walls
- columns

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27
Q

When did IMPS for Residential Buildings come into effect?

A

1st May 2018

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28
Q

What is the measurement guidance?

A

Professional Standard - RICS Property Measurement - 2018

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29
Q

Why is it important to carry out DD before an inspection?

A
  • Helps to make informed decisions
  • Helps to mitigate risk
  • Print title documents so you are aware of site boundaries
  • Planning check to see of they have the correct planning permission
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30
Q

What type of Environmental Due Diligence did you do?

A
  • Flood risk (low)
  • EPC (A)20
  • BREEAM ‘Very Good’
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31
Q

When do you use the investment method?

A

When it is an income producing asset

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32
Q

What type of Title Due Diligence did you do?

A

Freehold
Clean and marketable title
Free of any onerous clauses

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33
Q

What type of Planning Due Diligence did you do?

A

Correct number of rooms in permission is correct

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34
Q

What was the outcome of the technical due diligence?

A

Overall, in good condition
No obvious defects

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35
Q

What is a NIY?

A
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36
Q

When do you use the NIY? / what point in time does it refer to?

A

Valuation date
- In PBSA you use it against academic years income, so the NIY is fixed for 12 months and may change the following 12 months (technically like the lease period)
- Ensure to state what academic year you are basing it against

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37
Q

WHy do you look at comparable evidence that is a couple of months old?

A
  • Because they have transacted in the same academic year
  • Ie the NIY will not have changed from the start of the academic year (same return for the investor)
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38
Q

In terms of supply and demand is this done for the whole of the UK?

A
  • No - this is just within Exeter as it is a localised market
  • Students don’t tend to consider other cities
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39
Q

Does Exeter have strong underlying supply and demand?

A

Yes
- prime regional
- high level of unmet demand
- strong demand from strong ranking university
- limited supply and pipeline

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40
Q

When is a NIY yield usually measured?

A

Technically based on the purchase price ie the start of your ownership of an income producing asset

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41
Q

Did you do any Fire and building Safety Due diligence?

A

Not a HRB for the purpose of the Building Safety Act
Façade Fire Risk Assessment - low risk

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42
Q

What advice did you provide throughout the instruction?

A
  • Opinion of market rent
  • Opinion of market value
  • Advise on market dynamics
  • SWOT analysis
  • Suitability for secured lending
  • Future proofing of the loan / economic life of the loan
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43
Q

What was the room mix?

A

167 bedspaces
96 ensuite
71 studios

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44
Q

What amenity was there?

A
  • Gym
  • Spa
  • Games room
  • Study rooms
  • Bike storage
  • Cinema room
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45
Q

What was the range of advertised rents?

A

£220 - £310 pw

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46
Q

As a new build property were there any snagging periods?

A

No - it was build in 2021
Finished snagging period
No further maintenance issued identified and not identified on site

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47
Q

Works in the picture?

A
  • We were not required to wear PPE because we were not required to go into the building site and it was an operational asset with students living in
  • We only went to staff accessible areas
  • Adding more cycle storage (following demand on site) increasing 20 bike spaces - not impacting value
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48
Q

What is an Assured Shorthold Tenancy?

A

It’s a flexible agreement between a landlord and tenant for renting a property.

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49
Q

External inspection

A
  • Completed in 2021
  • Frames concrete
  • Flat roof (including PV panels)
  • Double glazed windows
  • Mix of brick faced, rendered (wooden), slated (lined) panel clad elevations
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50
Q

What was the state of repair?

A
  • Good condition
  • No sign of significant defects
  • Not a HRB under Building Safety Act 2022
  • Fire Risk Assessment – Low
  • Façade Fire Risk Assessment – Low
  • BREAAM ‘Very Good’
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51
Q

What were the strengths?

A
  • Modern PBSA
    - Fully let 3 years in a row
  • Premium service offering
  • Prime regional location
  • Large demand pool
  • BREAAM ‘Very Good’
    - Few schemes of this high-end offering
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52
Q

What were the weaknesses?

A
  • Minimal economies of scale as small in terms of PBSA
  • Non-prominent micro location
  • 1 university as opposed to 2
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53
Q

What opportunities were there?

A
  • Secure a nomination agreement
  • Reduce operational expenditure
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54
Q

What threats were there?

A
  • Increased supply in the vicinity
  • Visa restrictions
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55
Q

Did you consider the threat of increased pipeline as a problem?

A
  • no they were not in the immediate vicinity
  • would not materially impact the demand due to already high levels of unmet demand
  • New schemes are unlikely to be a direct comparable to WG due to its premium service offering so unlikely to directly impact demand
  • would impact a different part of the market
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56
Q

Wider economic/governmental threats?

A
  • Potential for visa restrictions
  • Still strong demand for high ranking Exeter university
  • Commands strong domestic
  • less likely to have an impact
  • Uni is well-ranked and robust so general economic actively likely to impact this scheme less
  • Exeter is a resilient market
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57
Q

What was key issue 1?

A

Determining the valuation methodology

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58
Q

What was key issue 2?

A

Establishing the market rent

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59
Q

What was key issue 3?

A

Determining the capitalisation rate

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60
Q

Why did you use the investment method?

A
  • Market practise
  • The asset produced a stable income stream - accurate forecasting
  • It focuses on the expected future cash flows generated by the property, such as rental income
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61
Q

What is considered a good comp?

A
  • comps within the university city
  • differing amenity offering
  • differing specification
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62
Q

What was you conclusion of the comps?

A
  • The Neighbourhood = directly comparable
  • Others - Inferior
  • Looked at upper end of the student renal market
  • Limited directly comparable (other than Neigbourhood)
  • WG is high end
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63
Q

Why not use the profits method?

A
  • Can be used but Investment is market practise
  • Investment method is valuing the asset that produces an income stream
  • Profits method is valuing the trading profits of a business
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64
Q

Why not use comparable method?

A

Limited transactions of directly comparable schemes

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65
Q

What considerations did you have to the rental comparables?

A
  • Proximity to scheme
  • Proximity to Universities
  • Proximity to city centre
  • Proximity to amenities
  • Specification
  • Level of amenity offering
  • Age
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66
Q

What considerations did you have to the yield comparables?

A
  • Macro location
  • Micro location
  • Specification
  • Amenity
  • PBSA/conversion
  • Lot size
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67
Q

What are included in the operating costs?

A
  • Utilities
  • Maintenance
  • Staff Costs
  • Marketing Costs
  • Insurance Costs
68
Q

What management fees did you include?

A

Typically we see 2.75% - 5.00%

We adopted 3%

69
Q

How does supply and demand impact value?

A

Strong demand and limited supply = increased rates

70
Q

What is CIL?

A

Charge that can be imposed on most new developments to raise funds for infrastructure/facilities needed to support the developments

71
Q

why were the CIL rates increased?

A

To reflect the specific characteristics and economic impact of this type of development

72
Q

How would increased CIL charge impact value?

A

Likely to deter development, which means a constricted supply

73
Q

Why did you use 2024/25 academic year rents?

A
  • At the time of the valuation, it was well into the 24/25 academic year letting cycle
  • 75% of rooms had been let
  • Strong indication of market rents for the upcoming year
  • In line with market practice
  • If it was earlier in the year = weighted approach
74
Q

Why did you use 51-week tenancies?

A
  • In line with market practice
  • In line with previous bookings
  • Strong indication that they would let on 51 weeks
  • Can do 44 weeks in line with the term
75
Q

What is unmet demand pool?

A

Those requiring PBSA less the supply of PBSA bedspaces

76
Q

What is the new CIL charge?

A

£150 sqm as of Jan 2024

77
Q

What was the most comparable rental scheme and why?

A

The Neighborhood
- Comparable location
- High spec and service offering
Albeit, larger studios

78
Q

The Neighbourhood isn’t in a comparable location?

A
  • Walnut Gardens is closer Uni
  • Albeit The Neighbourhood is closer to city centre amenities
  • Both non-prominent
  • Both have good transport links
79
Q

Which rental schemes were inferior?

A

Bonhay House
Queen Street Studios
Clifton Place

80
Q

Why was Bonhay House inferior?

A
  • Inferior location
  • Inferior spec
  • Inferior location at bottom of hill
81
Q

Why did Bonhay house have an inferior location?

A
  • Located at the bottom of a very steep hill
  • Below WG hillside
  • Steep walk up
  • After inspection we deduced it inferior and would deter some students
82
Q

How did Queen Street Studios compare?

A
  • Superior location (closer to uni and CC)
  • Modern but inferior spec to Walnut Gardens
83
Q

How does Clifton Place compare in terms of market rent?

A
  • Inferior location (bottom of a very steep hill)
  • Modern spec
  • Similar amenity
  • No premium service offering
    Rents at top end for WG
84
Q

What were the advertised rents for ensuites at WG?

A

£220 - £245

85
Q

What were the advertised rents for studios at WG?

A

£275 - £310

86
Q

How did you account for bad debts/void?

A

2% deduction of occupancy

87
Q

What was the opex per bed?

A

£3,200 (higher than usual)

88
Q

How did you cross-check the opex?

A
  • Through internal benchmark tool
  • other schemes
89
Q

What is prime/prime regional?

A

should be super prime regional and prime regional

90
Q

You say the Neighborhood occupies a similar location but they are different?

A

Similar type of non-prominent location

91
Q

Why would WG rents unlikely match the top of Neighbourhood?

A

Larger studios

92
Q

Did you adopt the opex budget?

A

Yes - it reflected the premium service offering

93
Q

What were the internal benchmarks at time of valaution?

A

Central London: 4.25%
Super Prime Regional: 4.75%
Prime Regional: 5.00%

94
Q

What is a prime regional location?

A

Maturing markets with a strong supply and demand ratio, typically more than one university

95
Q

Why was the yield a discount to BIC?

A

Non-prominent micro location

96
Q

Why was Exeter classed as Prime regional?

A
  • Strong ranking uni
  • Large unmet demand
  • Relatively restrictive planning
97
Q

How did it you deduce the yields in the in the comparables?

A
  • I analysed the transactions, from evidence received from the brochures/particulars
  • Which had the properties passing rents on them
  • I then looked confirmed with evidence whether this was market rent at at the time
  • Spoke with vendors agents who acted on the transactions - to understand the actual achieved price any nuisances
  • I then did an analysis to work out NIY = actual purchase price / NOI
  • the other costs ie operating costs are assumptions
98
Q

Why would it appeal to institutional investors?

A
99
Q

Why did Capital House trade keener?

A

At the time of valuation Southampton had seen strong rental growth and investors were buying into this.
This was due to no new supply

100
Q

Murieston Crescent?

A
  • PBSA
  • Edinburgh (superior)
  • inferior micro
  • inferior amenity and spec
101
Q

Why did Murieston Crescent trade softer?

A
  • Poor micro location – 20 min walk to Edinburgh Napier
  • Unlikely to serve University of Edinburgh – 30 min walk
  • Weaker amenity offering
  • Dated internally
102
Q

Chamberlain Place

A
  • Redeveloped office
  • Birmingham (superior)
  • City centre location (inferior)
  • Weaker amenity and spec
103
Q

Why did Chamberlain trade softer?

A
  • Office conversion is less appealing than a purpose built asset
  • Despite stronger macro, only serves 1 city centre University
  • City centre fringe location
  • Weaker amenity and spec
104
Q

Clifford House

A
  • PBSA
  • Same macro location
  • Comparable range of amenities
  • Comparable non-prominent micro location
105
Q

What is years purchase?

A

This is the number of years required for its income to repay its purchase price

106
Q

Why do you include a SWOT in loan security valautions?

A

Used to anticipate what may impact the value during the term of the loan

107
Q

Years Purchase calculation?

A

100 / 5.25

1/ 0.0525

108
Q

What were the operating costs per bed?

A

£3,200
(normally between £2,500-£3,000)

109
Q

What would typically be included in the operating costs?

A
  • Utilities
  • Marketing
  • Insurance
  • Staffing costs
110
Q

What did you include for the sundry income?

A

£1.50

111
Q

What was the management fee?

A

3% (of gross operating income)

112
Q

Why did you include 2% deduction?

A

Market practise within PBSA

113
Q

Gross MV calculation

A

Net Income / 0.0525

114
Q

Net MV calculation

A

Gross MV - purchasers costs

115
Q

What is the concept of LTV?

A

If the price drops for various reasons, the loan to value ratio will increase
65% would be the cap depending on the market

116
Q

Is 50% typical LTV ratio?

A

We consider it appropriate (65% max)
50% met the clients risk appetite
Ensured they satisfy themselves with their risk appetite

117
Q

Why did you deem it appropriate for loan security?

A
  • Operational, purpose-built asset
  • with strong historic letting cycles
  • Strong supply and demand dynamics
  • Strong macro location, with a well-regarded university
118
Q

Why did you adopt the provided operating costs?

A
  • Rents are inline with the premium servicing offering
  • We considered that given the lack of high end PBSA it would likely be marketable for this type of premium asset
    NB: the yield does not reflect the premium service offering
119
Q

How did you meet clients requirements?

A
  • Kept in timescales set out in ToE
  • Provided Market Value
  • Advised on suitability for Secured Lending
  • In line with global red Book and UK National Supplement
  • Communicated well
  • Provided a valuation report
120
Q

How did you deduce there were no conflicts?

A
  • Checked internal system
  • Had never valued the property before
  • Did not see a conflict
121
Q

Why was it responsible to under go due diligence?

A

To ensure I had all the information necessary to provide advice on the MV and suitability for secured lending

122
Q

What were the loan terms?

A

5 years from 2022
- with two 1 year extensions

123
Q

When is loan maturity?

A

2027

124
Q

How did you ensure client care?

A
  • Regular communication
  • Respected timeframes and kept to them
  • Provided a draft and answered any queries
  • CHP in ToE
  • Understood objectives of client through ToE
125
Q

How did you ensure communication and negotiation?

A
  • Regular updates with client
  • Fee negotiation
  • Communicated they must satisfy themselves with risk appetite
  • SWOT analysis
126
Q

How did ensure health and safety?

A
  • On the inspection
  • Looked out for any defects
  • HRB - Building Safety Act 2022
127
Q

What data management did you use?

A
  • Secure online data storage
  • Protected with passwords
  • Use of title documents
  • In line with GDPR
  • Inspections tool app
  • Online planning and EPC register
  • Comparable evidence table and analysis on excel
128
Q

How did you adhere to rule 1?

A

Ensured no conflicts

129
Q

How did you adhere to rule 2?

A
  • Proactively assessed my competence through seeking guidance when needed
  • Thorough review with supervisor
130
Q

How did you adhere to rule 3?

A
  • made my client aware that I was a trainee working alongside a RICS Registered Valuer who would oversee the valuation
  • ensured I met the scope of works
  • provided reports in a timely manner
131
Q

How did you adhere to rule 4?

A
  • respected tenants on inspection
  • respected clients by responding to queries in a timely manner
132
Q

How did you adhere to rule 5?

A
  • responsibly through thorough due diligence
  • as it could materially impact value
  • ensured peer review from supervisor
133
Q

How was it in line with Red Book Global?

A
  • VPGA 2 Secured lending
  • Agreed ToE
  • Ensured no conflicts
134
Q

Were you competent to provide advise in Exeter?

A

Yes
- Value across the whole of the UK
- Aware of different student cities
- Categorised by super prime, prime, secondary based on dynamics
- Sufficient SUK
- Valued assets there before
- sufficient information to rely upon

135
Q

Why are Purchasers costs lower?

A

For residential properties you don’t pay tax on the first £250,000

136
Q

What is a BIC student property?

A
  • Location close to uni
  • high level of amenity offering
  • high specification - good finished rooms, kitchens, double beds etc
  • Good transport links
137
Q

What is the difference between CIL and S.106 agreement?

A

CIL: Applies to a wide range of developments, typically based on a published tariff schedule. It is intended to be a more standardized and predictable approach.

S.106 agreements: Are negotiated on a case-by-case basis between the local authority and the developer. They are more flexible and can address specific site-related issues.

138
Q

Main differences between CIL and S.106

A
139
Q

Why did you use 2% discount for voids and bad debts?

A

It is market standard

140
Q

Why did you not use the market standard operating costs?

A
  • Because it was the scheme was operating off
  • Incoming operator would likely operate a similar high level premium offering
141
Q

How are your investment comps comparable if across the UK?

A
  • Based on prime/super prime locations with appropriate discounts
  • Limited evidence within direct cities use comparable city locations
  • I am aware of how other student markets operate
142
Q

Was CBRE Loan Services not a conflict of interest?

A

There are a separate entity to CBRE UK

143
Q

Why did you not need to measure all rooms and the whole building?

A
  • Because areas are not the driver of value
  • It is done on a per bed basis
  • Measurement done to cross-check areas so best analysis of comps
144
Q

How would you account for low occupancy?

A
  • income deduction or
  • impact on market rents
145
Q

How would a high flood risk impact value?

A

Might impact yield
Would assume sufficient insurance is in place
Would assume a new development has accounted for that in planning
Would advise lender on the high risk

146
Q

How would the tenure impact the valuation?

A
  • if leasehold with onerous clause/short time left = impact on yield
  • if LH would need to consider unexpired term
  • if LH would also need to consider if there is ground rent and deduct from value
147
Q

How might impacts of due diligence impact valuation?

A

Fire Safety
- Fire safety works may need to be done eg cladding

EPC
- Good EPC rating may reduce operational costs

148
Q

What valuations are excluded from the red book?

A
  1. providing agency or Brokerage Service in anticipation of receiving instruction to dispose of
  2. valuation for an expert witness
  3. internal purposes
149
Q

How is a reinstatement cost assessment done?

A

A surveyor visits the property to measure and assess it
The surveyor considers the cost of demolition, debris removal, professional fees, and the cost of complying with building regulations
The surveyor produces a final figure, which is the declared value for insurance purposes

150
Q

Were you asked to provide a VP Value?

A

Yes this is reported as a special assumption
Include a capital deduction for loss of income

151
Q

Who can rely on your Report for secured lending?

A

i) Addressees of the Report; and
ii) Parties who have received prior written consent from CBRE in the form of a
reliance letter;

152
Q

What are the minimum requirements for a Red book valuation

A
153
Q

What was a potential threat identified in your SWOT analysis

A
154
Q

In comparison to your evidence how did Walnut sit?

A
155
Q

What type of yield did you apply?

A
156
Q

What method of measurement did you use?

A
157
Q
  • What is the difference in TOE and TOB
A
158
Q

How did Clifford House’s location comapare

A
159
Q

How did Clifford House interior compare?

A
160
Q

When did the yield comps transact?

A
161
Q

Visa requirement

A
  • if you studied in the UK you could automatically be given 2 year post graduate stay post studies for work
  • Conservatives government looked to remove
  • Labour now out of power so no longer a thing
162
Q

what a reinstatement cost assessment?

A

A calculation of how much it would cost to rebuild a property after it’s been destroyed or significantly damaged. RCAs are used to determine the amount of insurance a property needs, especially in the event of a fire or flood.

163
Q

What did you comment on marketability?

A

We consider the market for the subject property is strong,
likely timescales to exchange are 9-12 months.
Potential purchasers may include private equity funds, PropCos and REITs
The small size of the asset may be less appealing to larger, institutional investors,
but increase the appeal and affordability for high net worth individuals and family
offices.

164
Q

What is VPGA 10?

A

UK VPGA 10 Valuation for commercial secured lending purposes

165
Q

Why was inspection date after valuation?

A
  • Due to unforeseen circumstances
  • Set valuation date not as at date of inspection
  • Borrower and staff confirmed no material changes from the valuation date to the inspection date
166
Q

What are the 2 main functions of advising on the suitability for secured lending?

A
  1. Can the capital value pay the loan? (LTV ratio)
  2. Does the property produce enough income to service the interest being paid on the loan?

Tilly Rees SoE (46 decks)

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