Case Study Flashcards
1
Q
What additional things did you include in your valuation report, with it being for secured lending?
A
- Disclosure of any conflicts (last 2 years):
- Stated the valuation method adopted, supported with the calculation: Investment method, and stated assumptions and inputs.
- When a recent transaction at the property has occurred/provisionally agreed price disclosed, the extent to which that information has been accepted as Market Value
- Comment on the suitability of the property for lending
- Any circumstances of which the valuer is aware that could affect the price
- if the property is, or is intended to be, the subject of development or refurbishment for residential purposes, the impact of giving incentives to purchasers
- Potential and demand for alternative uses
- Occupational demand for the property
2
Q
Where would you find further information on secured lending in the Red Book?
A
In the Global Red Book – VPGA 2 (secured lending)
UK Red Book supplement – VPGA 10 (commercial secured lending)
3
Q
When is Practical Completion deemed?
A
When the Certificate of Practical Completion is issued.
4
Q
What’s the difference between a lease and license? Do you know any case law relating to this?
A
A license grants a legal right to use the land that would otherwise be illegal, whereas a lease provides an occupier with an estate in the land. A lease can also be assigned but a license cannot.
5
Q
What is an AST?
A
Used for privately rented residential property.
Introduced by the Housing Act 1988, and extended by the Housing Act 1996.
Can be fixed term or periodic.
Limited security of tenure; landlord can regain possession without giving a specific reason as long as they follow procedures.
6
Q
Is a 3-year AST normal?
A
It is becoming more typical as tenants commit to renting longer term rather than buying.
It is the max. term before the tenancy has to be made by deed.
7
Q
How do you account for breaks / tenancies ending in your valuation?
A
With BTR, you value the income stream into perpetuity and do not assume individual tenancy breaks. This is because ASTs have a fairly high turnover compared to commercial leases and there are typically a high number on ASTs within an asset; it is very difficult to forecast breaks and voids. Void expenses are therefore accounted for in the Operating Expenditure assumption, and the risk is reflected in the yield sector-wide.
8
Q
What’s a typical void assumption in BTR?
A
Between 3 and 5%. We assumed 3% as we anticipate a low incidence of voids in the medium term due to newness of AST agreements.
9
Q
What type of investment method does the PRS model use?
A
The ‘conventional’ investment method.
Market Rent x YP = Market Value
10
Q
What is a peppercorn ground rent? How much is considered peppercorn?
A
A nominal or very small amount. Subject Property = £10 per year fixed.
11
Q
What is the use class for BTR?
A
C3 Residential
12
Q
You state areas on your case study; what was the basis of measurement?
A
13
Q
Would you measure balconies? How?
A
Under IPMS I would, and I would measure the roof terrace, but these would be stated separately.
Depends on the purpose;
IPMS 1 I would measure to the outer perimeter of the balcony to the external wall. External wall included.
IPMS 2 and 3 I would measure to the internal perimeter of the balcony to the external wall. External wall excluded.
14
Q
When did IPMS become mandatory for residential?
A
When the RICS Property Measurement Professional Statement became effective on 1 May 2018
15
Q
The block is 56% let – how did you value the vacant units/voids?
A
The instruction was to apply a Special Assumption that the block is fully let, therefore I did not value the vacant units as vacant.
16
Q
The block is 56% let – is this a concern to you as valuer?
A
This isn’t as it is a newly completed block that is part-way through its letting up period.
It is a Special Assumption (assumes facts that differ from the actual facts).
I discussed lettings velocities with local agents and was satisfied that the SA was reasonable and relevant per Red Book requirements.
17
Q
How did you allow for the impact of vacant units in your comparables?
A
We were assuming the block is fully let.
Voids are allowed for in the operating expenditure, therefore this requires analysis of actual operating expenditure in the comparables. Typically 3-5% voids are assumed.
18
Q
What are the main elements of a cashflow?
A
- Hold period
- Rent
- Rental Growth
- Ongoing Costs
- Purchaser’s Costs
- Exit Yield
- Required Return
19
Q
What are the affordable requirements in Lewisham? Where would you find them?
A
20
Q
If you had to provide affordable, would a poor door be acceptable?
A
Ethically, no. But it is not currently illegal.
21
Q
How do you check compliance with DDA?
A
22
Q
Are construction costs the same for private and affordable build costs?
A
Apply a blended rate.
23
Q
Why did you use a NIY?
A
Because its
• Approach taken by institutional investors in BTR and as valuer, trying to reflect the market.
• Applying to the income net of Purchaser’s Costs
• Applying it to the current (Market) Rent against the current price
24
Q
Why not an equivalent yield?
A
Because we are not assuming a reversion.
25
What is the difference between a Gross yield and a Net yield?
The difference is whether Purchaser’s Costs have been allowed for.
Gross – not adjusted for PCs, Net – adjusted for PCs.
26
If you had the Gross purchase price and the Gross rent, how would you work out the Net yield?
Deduct Purchaser’s Costs from the Gross purchase price to give the Net Purchase Price
Current Rent / Net Purchase Price x 100 = Net Yield.
27
Do your Gross rents include council tax? Utilities?
Gross rents are net of ancillary costs and bills.
28
What was the construction of the building? How did you deduce this?
Reinforced concrete frame with concrete slab floors. Deduced from the column structure and requesting further info from client.
29
The block is clearly managed by the operator. Where are their management fees accounted for? How much are they?
Fees accounted for in the operating expenditure.
| Typically expect management fees of c. 4% of the OPEX (works out about 1% of the GROSS INCOME).
30
What are OpEx costs made up of?
Voids, Maintenance, Insurance, Utilities and services, Management costs, Lettings costs, Amenity costs, Service charge and ground rent, Other.
31
What takes up the largest proportion of OpEx?
Maintenance and Utilities. These will be affected by age of building and size/level of amenity.
32
Why did you consider Canning Town the most similar OpEx comp?
Looking for something similar in age, size, and level of amenity.
Similar location in Zone 2/3 – similar costs of personnel and services.
Similar size block at 87 units and similar amenity; daytime concierge and rooftop allotments – WHICH AFFECTS UTILITIES COSTS.
Age of building similar, PC’d 12 months prior – WHICH AFFECTS LIKELY MAINTENANCE COSTS.
33
What IRR would an investor expect from a BTR investment?
In BTR expect 6-8% for a normal to low risk investment, with a holding period of 10 years.
34
What is an IRR?
The discount rate which produces an NPV of zero when used to discount the cashflow
35
How do you assess covenant strength in BTR?
In BTR currently, covenant strength is not typically assessed.
36
What is the hierarchy of sales evidence?
*****
37
What is the hierarchy of rental evidence?
```
Open market
Lease renewal
Rent review
Third party determinations
Sale and Leaseback
Inter-company transactions
```
38
What are current BTR yields?
```
London Zone 1: 3.00 – 3.25%
Zone 2: 3.50 – 3.75%
Zone 3-4: 3.75%
Greater London: 4.00%
Prime Regional: 4.00 – 4.50%
Secondary Regional: 5.00%
```
39
How do BTR yields compare to office? Retail?
BTR Zone 2 Prime: 3.50 - 3.75% and are stable. Zone 3 closer to 3.75%.
Prime Offices 4.00%+ Stable
Prime high street retail around 5.50% in this location – trending Weaker.
The yield is a reflection of risk, these yields could be interpreted that office investments in the area are more risky than the subject property as an investment.
40
What is the standard expectation of an institutional investor when considering build-to-rent investments?
Basic requirements are that it is professionally managed, with a daytime concierge and 24-hour security on call.
41
What are the differences between income capitalisation and DCF? Why use income capitalisation as the primary method?
They both rely on the future expected cashflows as drivers of value.
Income capitalisation is simpler approach where growth is implicit, DCF is more flexible when you want to make explicit assumptions.
42
There is no parking. Is this typical of a BTR site? What would an investor expect?
This is common with build to rent, particularly in London, aim for no parking at planning due to build costs of basements.
Developers aim to achieve a high PTAL rating (Public Transport Access Level – measures connectivity) to show that the site is well connected and therefore not require parking.
43
How would you assess parking requirements?
PTAL measure. A measure of the connectivity of the site by public transport (excl. car). Ratings range from 0 to 6, and a high rating is good connectivity.
44
What is Brexit’s impact on BTR?
*********
45
If Empire Heights was not a contracted yield, but was deemed, how would this affect the valuation?
It would affect the weight I would attach to that comparable as it is not yet contracted.
46
If you carried out this valuation in Euros, what would you do?
I would state the currency I’d be reporting in in the TOEs and Report.
47
What is the definition of Market Value
VPS 4: The estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.
Ignores any price distortions caused by special value or marriage value.
48
What’s the name of the Red Book
RICS Valuation – Global Standards 2017
49
NIY definition
Initial: The yield calculated from the current rent and the current NET price, i.e. the price has been adjusted for Purchaser’s Costs.
50
Difference between forward commit and forward funding
Forward fund: a contractual agreement whereby the investor agrees to finance the development in fixed payments. The investor will then pay the balancing payment to the value of the property at Practical Completion.
Forward commit: a contractual agreement between a buyer and seller to carry to purchase the development in the future, usually paid in full at practical completion.
51
Why forward fund
Developer doesn’t need to secure bank finance and has certainty of purchaser.
Investor regulates their capital outlay, can have input into the development and pre-let phase, and benefits from a more favourable (higher) yield by purchasing earlier in the process as there is an expectation for rental growth.
52
What are some of the risks of forward funding
Investor is taking on some of the development risk and risk of insolvency
53
How does forward funding structure affect the NIY
Typically FF yields are higher to reflect the additional risk the investor takes on throughout construction
54
Why would you use IRR? Why is it useful?
It’s is a measure of an investment's rate of return. It’s useful as a benchmark between comparables.
55
Is your IRR geared or ungeared? Which would you expect to be higher and why
Ungeared IRR, i.e. assume no debt financing (unleveraged)
Expect a higher IRR for geared i.e. assumed debt financed (leveraged) because you are leverage the equity (borrowing to increase the potential return of an investment); need to recoup payment faster to repay debt financing
56
What relief might be available from SDLT? Did you apply it?
Multiple Dwellings Relief.
Investor could qualify for MDR if purchasing 2 or more dwellings in one transaction under Residential SDLT.
Non-residential rates are payable on +6 resi units in one transaction – generally lower.
Rate based on the average price of the units involved in the transaction.
57
Your Ground Rent assumption is allowed for in your OpEx – did you assume peppercorn?
No, I made a market assumption for the ground rent and service charge which is part of the blended 25% assumption, which is the typical assumption taken by a investor operating in the market.
58
So did you over-egg the operating expenditure assumption?
It depends on the approach to determining the OpEx assumption.
Another approach could be, if I had selected the analysis of actual operating expenditure approach, would be to account for peppercorn ground rent as well as analysing other actual costs.
59
How did you account for differences in GR level with your comps.
Using comparable evidence.
60
What recent safety regulations might you consider for a BTR block? Why have they come about?
Following the Grenfell disaster where ACM – aluminium composite materials - cladding contributed to rapid spread of fire up the outside of the tower.
RICS issued a GN on fire safety in high rise buildings used as dwellings. Holistic approach; risk assessment by qualified assessor for ALL combustible materials, not just ACMs.
61
What has been the impact of Grenfell?
Discussion of creating global fire safety standards.
Landlords and managers must have robust fire assessments.
Earlier this year, the government announced it would fund replacement of unsafe ACM cladding on high-rise (18m +) private residential properties where building owners have failed to do so.
62
What are the legal requirement regarding use of ACMs?
It is the responsibility of building owners in the private residential sector to remove existing – not legal req. yet.
Illegal to use combustible cladding on all new buildings over 18m.
63
How do fire safety regulations impact your valuation? Where would you include in a report?
We have a duty to maintain a paper trail.
We request information from client on presence of ACMs, and comment on the associated potential safety risks and value impacts in the valuation report.
No direct comparable evidence on how presence of ACMs would affect value at present.
Include it in environmental considerations and SWOT analysis.
64
What fire measures would you expect to see in a high rise block?
Expect a sprinkler system (but not a legal req), escape route signage,
65
What is a typical POC for BTR
7.5%
66
Do you allow for pre-sales? How much
Yes – typical assumption is 40% which is sense checked with local agents regarding demand and lettings velocity.
67
How would you value a Leasehold interest?
Typically, I would deduct the Ground Rent from the Gross Income to calculate the Net Income.
Capitalise Net Income at a yield for the remaining length of the lease to create a Market Value of the Leasehold Interest.
Typically, single rate yield discounted to reflect risk that a Leasehold interest a ‘wasting asset’; depends on the length of the lease remaining. Long leasehold interests do not realistically require a discount.
Graphs of relativity show relationship between lease term remaining and the % of Freehold value. Under 100 years; treated as a ‘wasting asset’; begins to decrease in value.
68
What are two current market topics
1. Building safety regulator; legislation to put in place a new building safety regulator to oversee construction of high-rise housing
2. £5bn laundered money purchased luxury UK homes; leading to calls for the a publicly accessible register of ownership to be made law as soon as possible.
69
Commercial SDLT bands?
Up to £150,000 0%
The next £100,000 (the portion from £150,001 to £250,000) 2%
The remaining amount (the portion above £250,000) 5%
70
Residential SDLT bands?
Up to £125,000 0%
The next £125,000 (the portion from £125,001 to £250,000) 2%
The next £675,000 (the portion from £250,001 to £925,000) 5%
The next £575,000 (the portion from £925,001 to £1.5 million) 10%
The remaining amount (the portion above £1.5 million) 12%
71
Do CBRE show their client money handling on their website?
It is freely available on request.
72
What are the requirements for Confidentiality?
RICS Bye Laws – client confidentiality must be maintained
| GDPR 18 & DPA 18 – a principle of both is Security
73
What is the definition of BTR / sets it apart from private rental sector?
* Institutionally owned,
* professionally managed in an integrated way,
* usually purpose-built residential accommodation for rental purposes.
* Typically blocks of at lest 50 units singularly owned.
74
What’s the difference between Gross Income vs. Net Income
* In BTR Gross to Net Income refers to whether the operating expenditure has been accounted for.
* Gross Income is the Income receivable before expenses. You then deduct the operating expenditure – or adopt a discount assumption – to determine the Net Operating Income.
75
What is the OpEx? What does it include?
```
It’s the likely irrecoverable expenditure required to maintain the current level of Market Rent. Most BTR is professionally managed – allowing control and management over the building - and offers additional services e.g. concierges, amenities. To allow comparison across blocks, it’s calculated as a percentage of the Gross income. Includes:
1. Voids
2. Write-offs
3. Expenditure on voids
4. Maintenance
5. Insurance
6. Utilities
7. Management costs
8. Letting costs
9. Amenity costs
10. Service charge and ground rent
11. Other
Capital expenditure is deducted separately in the valuation approach and will be dependent on the age and condition of the building – would cover replacement of items like roof, lifts, internal fittings.
```
76
Did you identify any conflicts of interest? This must be an issue if you value a large portion of the BTR market.
Yes – CBRE carry out regular accounts valuations for the Borrower. We declared the conflict and obtained Informed Consent. Management procedures included different personnel carrying out the instruction and we included digital security proceedures. Noted in TOE and report.
77
How does dealing with conflicts of interest differ in secured lending valuations?
UNDER RED BOOK VPGA2
- Any previous, current or anticipated involvement with the prospective borrower/property must be disclosed to lender (‘previous involvement’ = past 2 years, but can be longer)
VPGA2 gives examples of such involvement resulting in conflict of interest include:
- A longstanding professional relationship with prospective borrower/owner of property
- When valuer will gain fee from introducing the transaction to the lender
- If there is a financial interest in the property holding or prospective borrower
- When valuer is retained to act in the disposal/letting of the completed development on the subject property
78
What did you say about suitability for lending? Why?
* That it is suitable for lending purposes
* the property is well located within a sought after and established residential area
* high demand for asset in its current use form investors seeking long-term income
* underpinned by a strong VPV at c.8% above MV should break-up be required
* Lender should ensure satisfied that the repayments are adequately covered by the NET income
79
What did you write in your report about occupational demand for the property?
- BTR sector undersupplied, much of it in pipeline – high demand for quality, purpose-built assets from investors
- From tenants
- Rental growth
80
In addition to the min. valuation report requirements, what must also be reported for loan security valuations THAT ARE TO BE HELD AS INVESTMENTS?
- Commentary on rental income vs. market rental value; the asset is only 56% let therefore clear gap in the aggregate passing and market rents
- Comment on maintainability of income over the life of the loan
- Potential for redevelopment or refurbishment
81
What due diligence did you carry out?
- Flood risk: Zone 1 (very low chance)
- Fire risk assessment report: reviewed; prepared before PC by a third party, so no occupiers. Risk was ‘substantial’, but borrower provided further evidence that its recommendations had been implemented. Included inadequate fire signage, items in electrical cupboards, a damaged fire-resistant glass-panel.
- EPCs: obtained for all units and checked min. rating. All rated B.
- Planning website: original application
82
Tell us about the inspection.
- Inspected the immediate area; which included the station providing services into central London, the local Lewisham high street to the east. I noted that a railway line ran parallel to the site on the opposite side of the road to the north, and that there was a development site to the south; for a hotel and restaurants.
- Assessed comparable blocks in immediate area that I’d identified for rental comparables and VPVs.
- Inspected the site externally and walked the boundary; noted access, the method of construction (concrete frame with brick clad elevations, metal framed double-glazed windows, balconies to all units).
- Internally; inspected communal areas – reception and roof terace, 1 core with 2 lifts and staircase. Inspected 6 1-bed and 5 2-beds on varying storeys.
83
What was the specification? How do you judge this?
- Laminate timber flooring throughout, tiled bathrooms
- Washing machine and dryer in the hallway cupboard
- Heating and hot water; thermostatically controlled from communal system
- Open plan kitchens with integrated appliances and granite-effect worktops
- White bathroom suites; 1 family bathroom, 1 ensuite w/ shower only
This is a good institutional specification. Only exceeded by a luxury BTR development that might have improved flooring, higher spec integrated appliances.
84
Why did you adopt a Net Initial Yield, and why not an equivalent/equated?
We value using a NIY as we are led by the market approach – institutional investors take this approach whereby they value the NET income.
85
How has the Tenant Fees Act 2019 affected the BTR section and valuation approach?
Can still charge as optional extra; council tax, utilities, broadband, TV license, pet rent (but not higher deposit).
Cannot charge; tenancy admin, inventory, credit checks.
Likely to impact actual OpEx comps, but hasn’t change current market assumption of 25%.
86
Do you really think people will pay £325 more for one more bedroom? There is a huge difference between your two base MRs.
The difference is partly for the aditional bedroom, but also because the difference between the smallest 1 bed and the smallest 2 bed is quite large – 200sqft. Therefore, the base value for the 2 beds needed to consider this. A sense-check exercise is to check the £ per sqft.
87
How did you calculate the Purchaser’s costs at 6.76%?
4.96% SDLT – calculated in bands of 0% for first £150k, 2% on next £100,000 and 5% on remainder
1% agent + VAT
0.5% legal + VAT
88
What are the key drivers of rental level in a BTR unit?
1. Size
2. Location
3. Aspect
4. Block amenity
89
Are you required to report MV without any special assumptions as well?
There is no Red Book requirement in the Red Book to provide the Market Value without the Special Assumption.
There is a requirement that any report must not be ‘ambiguous’ or ‘misleading’ or ‘create a false impression’ under VPS 3.
I therefore ensured my Special Assumption was clearly stated, and included a statement in the Report drawing the client’s attention to the fact that the MV without the Special Assumption would be materially higher or lower – and that if the client required such a figure, you would be pleased to provide it.
90
What are the 2 ways a landlord can get VPV under an AST?
Section 8 Notice – landlord must give a legal reason to end tenancy e.g. rent arrears or terms of AST breached
Section 21 Notice – ‘no fault’, no reason to evict required from landlord
91
Can you tell me the major terms of engagement that you agreed with the client? (key headings) There are 18 min. requirements under the Red Book.
(a) Identification and status of the valuer - (named individual for and on behalf of a firm)
(b) Identification of the client(s)
(c) Identification of any other intended users – (default position, valuers should confirm that they do not permit 3rd
party reliance to reduce risk)
(d) Identification of the asset(s) or liability(ies) being valued
(e) Valuation (financial) currency
(f) Purpose of the valuation
(g) Basis(es) of value adopted
(h) Valuation date – must be agreed with client
(i) Nature and extent of the valuer’s work – including investigations and any limitations thereon
(j) Nature and source(s) of information upon which the valuer will rely
(k) All assumptions and special assumptions to be made
(l) Format of the report
(m) Restrictions on use, distribution and publication of the report
(n) Confirmation that the valuation will be undertaken in accordance with the IVS
(o) The basis on which the fee will be calculated
(p) Where the firm is registered for regulation by RICS, reference to the firm’s complaints handling procedure, with a copy available on request
(q) A statement that compliance with these standards may be subject to monitoring under RICS’ conduct and disciplinary regulations
(r) A statement setting out any limitations on liability that have been agreed.
92
Importance of a valuation date?
Fixes the market conditions at that point in time
| Fixes the property condition/spec/configuration at that point in time
93
Definition of market value – what is a liability?
It is where the subject property has a negative value.
MV: The estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.
94
Arrangements pre-inspection? What did you take?
Desk top review; situation, location, plan route, arrange access via client.
Prepare items to take; print plans, inspection proforma, charged camera, disto and spare battery, pen and paper, charged mobile phone, PPE (if required).
Risk assessment.
Charged mobile phone
Plan an escape route
Implement a call back system with office
Make calendar available to colleagues
Make sure you know who you are meeting
Be aware of aggressive occupants and dogs
Follow your instinct
95
Access to the unit? Did you inspect every flat?
Access via Borrower with Lender’s permissions to contact them directly.
Agreed in TOEs to inspect 15% of units; sample of 1 and 2 beds over varying stories.
96
Did you look at all 38 ASTs?
No, reviewed a template AST used for all units.
97
What were the terms of the ASTs?
3 year fixed-term (the max. term before the tenancy has to be made by deed), with a rolling break from 12-months (2-months notice). Annual rent reviews in line with XXXX
ASTs provide no security of tenure for tenants.
98
What happens under Section 21 in relation to ASTs?
Landlord is able to terminate the tenancy on a ‘no-fault basis’ by serving a Section 21 Notice which must provide not less than two months’ notice.
Invalid if: less than 2 months notice given, deposit not registered, mistake on s21 notice.
99
If tenants don’t break, what happens at the end of the year?
If break isn’t used, tenancy continues per the AST agreement to the end of the term.
If end of the agreed term, tenant can stay on a rolling basis or agree a new contract.
100
Voids – where does this feature into your valuation?
Capital expenditure assumption; typically 3-4%. 3% assumed here.
101
Is there another way you could deal with voids apart from putting it into your expenses?
Could also be reflected in the yield.
102
How would the rent be determined at the rent review?
Determined by XXXX
There are 3 ways it is agreed:
1. rent review clause in AST setting out when/how much
2. by agreement with tenant
3. by Section 13 Notice under Housing Act 1988
103
What legislation covers ASTs?
Housing Act 1988 introduced them, later amended in 1996 and 2004
104
Rent deposits? What happens with them in an AST?
Required to register them with a deposit protection scheme. New legislation = 5 weeks deposit maximum.
105
What are the 2 types of deposit schemes?
Custodial Tenancy Deposit Scheme, and an Insurance Tenancy Deposit Scheme.
106
How does a deposit scheme work?
Landlord must register the deposit within 30 days of receipt.
Protected throughout the tenancy until it ends, then it is returned to the tenant less any deductions agreed between LL and T.
107
Government discussions with RICS about changing the way ASTs work?
Discussion about getting rid of s.21 notices under Housing Act (‘no-fault’ evictions). Under consultation. Concerns; LL’s will raise rent to end a tenancy instead.
108
Is that base value an average figure? Is it a composite figure?
Composite figure which then has adjustment capital values applied
109
2 beds rent for more than 1 beds – did you refer to the relativity on comps as a sense-check?
Yes; however gap appears wider as 2-bedrooms units are also significantly larger in sq ft, so the rental increase is 2-fold.
110
No affordable housing?
None within the SP; provided off-site.
111
If there had been affordable, what changes in your valuation?
The overall Market Value would decrease as units would be valued at Discounted Market Rent. Depends on the local authority caps however typically 80% of Market Rent. Provision in Lewisham is 35% of total units.
112
Where in Red Book deals with valuing affordable?
UK VPGA 18 – affordable rent under the Housing Acts
assume 12-month ASTs
assume rent inclusive of service charge
limited market evidence (I consult our internal Affordable team)
113
How did you check IRR was an appropriate sense-check between that on your handout?
In BTR expect 6-8% ungeared IRR for a normal to low risk investment, with a holding period of 10 years. It’s useful as a benchmark between comparables.
114
When you created your model, did you consider return aside from IRR / are there other forms of return for your investment/ aside from looking at the measure of return using IRR, are there other ways you could determine investor’s return?
```
ROCE - financial ratio that measures a company's profitability and the efficiency with which its capital is used. Operating profit/capital employed.
Development yield (POC)
```
115
Where was the lack of evidence? Rental or investment?
Investment evidence (extend search parameters/lower down hierarchy of evidence) and operating expenditure evidence (adopt market assumption)
116
In Red Book 2017 there is a supplement that sits beside it – what has changed?
UK Supplement 2018.
Statement to make it clear that's is supplemental to Global RB.
Restructured to be more user friendly.
Redress balance; 10% mandatory, 90% guidance.
117
Red Book 2020 that has been published as a draft. What’s different?
Will incorporate IVS 2019.
| Notable change; 2 valuations required for development properties (as it is at present, and for the proposed development)
118
New comparable evidence guidance notes – what does it say about the hierarchy of evidence?
Comparable evidence in real estate valuation 1st edition, October 2019. Guidance Note.
Category A, B and C.
A: direct comps – subject property, near-identical property, asking prices
B: general market data – e.g. MSCI
C: other sources – e.g. other locations, other real estate types
119
2 pieces of case law within the last 12 months?
Franses v Cavendish Hotel 2018: Hotel opposing new tenancy under s.30, Ground F of the L&T Act citing redevelopment despite no intention, they just wanted VP. Test; would LL do works if tenant was leaving voluntarily?
Wells v Devani 2019: went to Supreme Court. Case was about whether a binding contract had been agreed between a developer and estate agent. Supreme Court ruled there had been, despite neither party specifying when the agreed fee rate would be due.
