Case study COPY Flashcards
1
Q
What was the Market Value and Yield?
A
£27,450,000 @ 5.25%
£164,000 per bed
2
Q
Benchmark capital val;ues per bed?
A
£100,000 - £180,000
3
Q
What was the valuation date?
A
30th May 2024
4
Q
VP?
A
less £1m (capital deduction via income shortfall)
5
Q
What was the owenrship of the property?
A
Freehold
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
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
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
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.
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
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
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
13
Q
As per VPGA 2 what else did you include in your report?
A
- Purpose and basis of valuation
- Suitability of the property as security for lending purposes
- Market conditions
- Sustainability considerations
- Independence - no previous involvement with the property or borrower for the last 2 years
- Reliance - those addressed in the report or parties with prior consent with a letter of reliance
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
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
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.
17
Q
Was it not a conflict working for CBRE Loan Servcies?
A
No they are a separate legal entity
18
Q
Where there any conflicts of interest?
A
- Conflict of interest check on internal system
- Never valued the property before
- No conflict
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)
20
Q
How did you ascertain that you were competent?
A
- Regularly value PBSA
- Peer reviewed work
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
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
23
Q
What use class is PBSA?
A
Sui Generis
- treated as a one off each time
24
Q
Can you describe the inspection?
A
- external (any obvious defects)
- locality
- internal (defects & spec and amenity)
25
What basis of measurement did you use?
IPMS 3C residential
26
What is included in IPMS 3C residential?
Measurement of the area of exclusive occupation to the Internal Dominant Face
Excludes:
- walls
- columns
27
When did IMPS for Residential Buildings come into effect?
1st May 2018
28
What is the measurement guidance?
Professional Standard - RICS Property Measurement - 2018
29
Why is it important to carry out DD before an inspection?
- 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
30
What type of Environmental Due Diligence did you do?
- Flood risk (low)
- EPC (A)20
- BREEAM 'Very Good'
31
When do you use the investment method?
When it is an income producing asset
32
What type of Title Due Diligence did you do?
Freehold
Clean and marketable title
Free of any onerous clauses
33
What type of Planning Due Diligence did you do?
Correct number of rooms in permission is correct
34
What was the outcome of the technical due diligence?
Overall, in good condition
No obvious defects
35
What is a NIY?
36
When do you use the NIY? / what point in time does it refer to?
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
37
WHy do you look at comparable evidence that is a couple of months old?
- 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)
38
In terms of supply and demand is this done for the whole of the UK?
* No - this is just within Exeter as it is a localised market
* Students don't tend to consider other cities
39
Does Exeter have strong underlying supply and demand?
Yes
- prime regional
- high level of unmet demand
- strong demand from strong ranking university
- limited supply and pipeline
40
When is a NIY yield usually measured?
Technically based on the purchase price ie the start of your ownership of an income producing asset
41
Did you do any Fire and building Safety Due diligence?
Not a HRB for the purpose of the Building Safety Act
Façade Fire Risk Assessment - low risk
42
What advice did you provide throughout the instruction?
- 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
43
What was the room mix?
167 bedspaces
96 ensuite
71 studios
44
What amenity was there?
- Gym
- Spa
- Games room
- Study rooms
- Bike storage
- Cinema room
45
What was the range of advertised rents?
£220 - £310 pw
46
As a new build property were there any snagging periods?
No - it was build in 2021
Finished snagging period
No further maintenance issued identified and not identified on site
47
Works in the picture?
- 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
48
What is an Assured Shorthold Tenancy?
It's a **flexible** agreement between a landlord and tenant for renting a property.
49
External inspection
- Completed in 2021
- Frames concrete
- Flat roof (including PV panels)
- Double glazed windows
- Mix of brick faced, rendered (wooden), slated (lined) panel clad elevations
50
What was the state of repair?
- 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’
51
What were the strengths?
- 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**
52
What were the weaknesses?
- Minimal economies of scale as small in terms of PBSA
- Non-prominent micro location
- 1 university as opposed to 2
53
What opportunities were there?
- Secure a nomination agreement
- Reduce operational expenditure
54
What threats were there?
- Increased supply in the vicinity
- Visa restrictions
55
Did you consider the threat of increased pipeline as a problem?
- 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
56
Wider economic/governmental threats?
- 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
57
What was key issue 1?
Determining the valuation methodology
58
What was key issue 2?
Establishing the market rent
59
What was key issue 3?
Determining the capitalisation rate
60
Why did you use the investment method?
- 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
61
What is considered a good comp?
- comps within the university city
- differing amenity offering
- differing specification
62
What was you conclusion of the comps?
* 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
63
Why not use the profits method?
- 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
64
Why not use comparable method?
Limited transactions of directly comparable schemes
65
What considerations did you have to the rental comparables?
- Proximity to scheme
- Proximity to Universities
- Proximity to city centre
- Proximity to amenities
- Specification
- Level of amenity offering
- Age
66
What considerations did you have to the yield comparables?
- Macro location
- Micro location
- Specification
- Amenity
- PBSA/conversion
- Lot size
67
What are included in the operating costs?
- Utilities
- Maintenance
- Staff Costs
- Marketing Costs
- Insurance Costs
68
What management fees did you include?
Typically we see 2.75% - 5.00%
We adopted 3%
69
How does supply and demand impact value?
Strong demand and limited supply = increased rates
70
What is CIL?
**Charge** that can be **imposed** on most **new developments** to **raise funds** for infrastructure/**facilities** needed to **support the developments**
71
why were the CIL rates increased?
To **reflect** the specific **characteristics** and **economic impac**t of this **type** of **development**
72
How would increased CIL charge impact value?
Likely to deter development, which means a constricted supply
73
Why did you use 2024/25 academic year rents?
- Thats what the market does!!!
- 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
Why did you use 51-week tenancies?
- 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
What is unmet demand pool?
Those requiring PBSA less the supply of PBSA bedspaces
76
What is the new CIL charge?
£150 sqm as of Jan 2024
77
What was the most comparable rental scheme and why?
The Neighborhood
- Comparable location
- High spec and service offering
Albeit, larger studios
78
The Neighbourhood isn't in a comparable location?
- Walnut Gardens is closer Uni
- Albeit The Neighbourhood is closer to city centre amenities
- Both **non-prominent**
- Both have good transport links
79
Which rental schemes were inferior?
Bonhay House
Queen Street Studios
Clifton Place
80
Why was Bonhay House inferior?
- Inferior location
- Inferior spec
- Inferior location at bottom of hill
81
Why did Bonhay house have an inferior location?
- 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
How did Queen Street Studios compare?
- Superior location (closer to uni and CC)
- Modern but inferior spec to Walnut Gardens
83
How does Clifton Place compare in terms of market rent?
- Inferior location (bottom of a very steep hill)
- Modern spec
- Similar amenity
- **No premium service offering**
Rents at top end for WG
84
What were the advertised rents for ensuites at WG?
£220 - £245
85
What were the advertised rents for studios at WG?
£275 - £310
86
How did you account for bad debts/void?
2% deduction of occupancy
87
What was the opex per bed?
£3,200 (higher than usual)
88
How did you cross-check the opex?
- Through internal benchmark tool
- other schemes
89
What is prime/prime regional?
should be super prime regional and prime regional
90
You say the Neighborhood occupies a similar location but they are different?
Similar type of non-prominent location
91
Why would WG rents unlikely match the top of Neighbourhood?
Larger studios
92
Did you adopt the opex budget?
Yes - it reflected the premium service offering
93
What were the internal benchmarks at time of valaution?
Central London: 4.25%
Super Prime Regional: 4.75%
Prime Regional: 5.00%
94
What is a prime regional location?
Maturing markets with a strong supply and demand ratio, typically more than one university
95
Why was the yield a discount to BIC?
Non-prominent micro location
96
Why was Exeter classed as Prime regional?
- Strong ranking uni
- Large unmet demand
- Relatively restrictive planning
97
How did it you deduce the yields in the in the comparables?
- 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
Why would it appeal to institutional investors?
99
Why did Capital House trade keener?
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
Murieston Crescent?
- PBSA
- Edinburgh (superior)
- inferior micro
- inferior amenity and spec
101
Why did Murieston Crescent trade softer?
- Poor micro location – 20 min walk to Edinburgh Napier
- Unlikely to serve University of Edinburgh – 30 min walk
- Weaker amenity offering
- Dated internally
102
Chamberlain Place
- Redeveloped office
- Birmingham (superior)
- City centre location (inferior)
- Weaker amenity and spec
103
Why did Chamberlain trade softer?
- 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
Clifford House
- PBSA
- Same macro location
- Comparable range of amenities
- Comparable non-prominent micro location
105
What is years purchase?
This is the number of years required for its income to repay its purchase price
106
Why do you include a SWOT in loan security valautions?
Used to anticipate what may impact the value during the term of the loan
107
Years Purchase calculation?
100 / 5.25
1/ 0.0525
108
What were the operating costs per bed?
£3,200
(normally between £2,500-£3,000)
109
What would typically be included in the operating costs?
- Utilities
- Marketing
- Insurance
- Staffing costs
110
What did you include for the sundry income?
£1.50
111
What was the management fee?
3% (of gross operating income)
112
Why did you include 2% deduction?
Market practise within PBSA
113
Gross MV calculation
Net Income / 0.0525
114
Net MV calculation
Gross MV - purchasers costs
115
What is the concept of LTV?
If the price drops for various reasons, the loan to value ratio will increase
65% would be the cap depending on the market
116
Is 50% typical LTV ratio?
We consider it appropriate (65% max)
50% met the clients risk appetite
Ensured they satisfy themselves with their risk appetite
117
Why did you deem it appropriate for loan security?
- Operational, purpose-built asset
- with strong historic letting cycles
- Strong supply and demand dynamics
- Strong macro location, with a well-regarded university
118
Why did you adopt the provided operating costs?
- 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
How did you meet clients requirements?
- 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
How did you deduce there were no conflicts?
- Checked internal system
- Had never valued the property before
- Did not see a conflict
121
Why was it responsible to under go due diligence?
To ensure I had all the information necessary to provide advice on the MV and suitability for secured lending
122
What were the loan terms?
5 years from 2022
- with two 1 year extensions
123
When is loan maturity?
2027
124
How did you ensure client care?
- 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
How did you ensure communication and negotiation?
- Regular updates with client
- Fee negotiation
- Communicated they must satisfy themselves with risk appetite
- SWOT analysis
126
How did ensure health and safety?
- On the inspection
- Looked out for any defects
- HRB - Building Safety Act 2022
127
What data management did you use?
- 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
How did you adhere to rule 1?
Ensured no conflicts
129
How did you adhere to rule 2?
- Proactively assessed my competence through seeking guidance when needed
- Thorough review with supervisor
130
How did you adhere to rule 3?
- 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
How did you adhere to rule 4?
- respected tenants on inspection
- respected clients by responding to queries in a timely manner
132
How did you adhere to rule 5?
- responsibly through thorough due diligence
- as it could materially impact value
- ensured peer review from supervisor
133
How was it in line with Red Book Global?
- VPGA 2 Secured lending
- Agreed ToE
- Ensured no conflicts
134
Were you competent to provide advise in Exeter?
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
Why are Purchasers costs lower?
For residential properties you don't pay tax on the first £250,000
136
What is a BIC student property?
- Location close to uni
- high level of amenity offering
- high specification - good finished rooms, kitchens, double beds etc
- Good transport links
137
What is the difference between CIL and S.106 agreement?
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
Main differences between CIL and S.106
139
Why did you use 2% discount for voids and bad debts?
It is market standard
140
Why did you not use the market standard operating costs?
- Because it was the scheme was operating off
- Incoming operator would likely operate a similar high level premium offering
141
How are your investment comps comparable if across the UK?
- 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
Was CBRE Loan Services not a conflict of interest?
There are a separate entity to CBRE UK
143
Why did you not need to measure all rooms and the whole building?
- 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
How would you account for low occupancy?
- income deduction or
- impact on market rents
145
How would a high flood risk impact value?
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
How would the tenure impact the valuation?
- 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
How might impacts of due diligence impact valuation?
Fire Safety
- Fire safety works may need to be done eg cladding
EPC
- Good EPC rating may reduce operational costs
148
What valuations are excluded from the red book?
1. providing agency or Brokerage Service in anticipation of receiving instruction to dispose of
2. valuation for an expert witness
3. internal purposes
149
How is a reinstatement cost assessment done?
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
Were you asked to provide a VP Value?
Yes this is reported as a special assumption
Include a capital deduction for loss of income
151
Who can rely on your Report for secured lending?
i) Addressees of the Report; and
ii) Parties who have received prior written consent from CBRE in the form of a
reliance letter;
152
What are the minimum requirements for a Red book valuation
153
What was a potential threat identified in your SWOT analysis
154
In comparison to your evidence how did Walnut sit?
155
What type of yield did you apply?
156
What method of measurement did you use?
157
- What is the difference in TOE and TOB
158
How did Clifford House's location comapare
159
How did Clifford House interior compare?
160
When did the yield comps transact?
161
Visa requirement
- 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
what a reinstatement cost assessment?
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
What did you comment on marketability?
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
What is VPGA 10?
UK VPGA 10 Valuation for commercial secured lending purposes
165
Why was inspection date after valuation?
- 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
What are the 2 main functions of advising on the suitability for secured lending?
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?
167
Why is stamp duty less than 5%?
Based on the stamp duty thresholds by HMRC
