Case Study Questions Flashcards
How was the valuation in line with the RICS Red Book?
- VPS1 - Terms of Engagement
- VPS2 - Inspections
- VPS3 - Valuation Reports
- VPS4 - Valuation Bases
- Loan Security Valuation VPGA2
How did you provide the valuation subject to vacant possession?
Valued as one site. Adopted a rate of £17.50 psf to the entire area.
£3.2M
How did you prepare for the inspection?
- Received instruction and Terms of Engagement
- Arranged with the bank’s customer
- Undertook a risk inspection
- Enquired for a lease plan
- Assessed PPE requirements
How did the location of the property affect the value?
- Consider access routes
- The town - Hull (secondary city)
- The location - good road links (motorway access)
Popular industrial estate
How did you notice the asbestos roofs?
- Dark corrugated roof
- Aged
- Banks customer informed us that it had been identified as Asbestos
How did you report the asbestos roofs within your valuation?
- Asbestos roofs to the Omar units
- Informed by the property manager that asbestos was present and had a management survey (required 6 monthly)
- Duty of the tenant if a repairing lease
- Did not have site of the asbestos register but understood asbestos to be present
- We clarify that our valuation inspection does not constitute a building survey and therefore we do not comment in detail about the asbestos containing materials
How did you account for the value of the office unit in your valuation?
- I included the office property within the GIA area as it was ancillary to the industrial space and not out of the ordinary at (8-9%)
- In terms of value, I included it within the same MR psf figure to reflect this.
What did the 1954 Act Protection mean for the tenants?
The 1954 Landlord and Tenant being contained within the lease gives Security of Tenure and the right to a new lease for the tenant. The terms of this are to be agreed.
Were your land comparables fully surfaced?
The majority of the comparables were fully surfaced and therefore the value returned for the subject would be below this evidence.
Who did you discuss the valuations with?
- I spoke with my supervisor, other valuation colleagues, as well as agency colleagues.
- I spoke with other agents and professionals within the market to undertake market research.
Why did you adopt a rate of £3.25 psf to the Omar units and £2.55 psf to the Rettig units?
- The additional to the Omar units was reflective of mostly the yard area
- The Omar unit was also of a more open plan space with better access from Hedon Road also
Where did you get evidence for £20,000 per acre for the land in option B?
Gathered rental comparable evidence for industrial land in the area. This is Appended within the comparables.
Why did you adopt the same yields for both leases?
- Both properties of a similar covenant strength
- Both similar natures of companies
- Both had a similar amount of time remaining on the lease
- Both similarly under-rented slightly
What was the rent review clause in the Omar lease?
Review to Market Rent
Why did you adopt a 9 month re-letting period?
Despite being a demanded market, two units to let with a shared site. Additional time to reflect the difficulty of marketing the unit on this basis.
Why did you adjust the yield by 1.5% on the reversion?
A suitable adjustment to reflect:
- The unknown of a new tenant
- Adjustment to paying a slightly higher rent (MR)
Why did you deduct purchaser’s costs and how did you do it?
- Good practice to deduct purchaser’s costs
- SDLT
- 1% agency
- 0.5% legal
+ VAT 20%
What does the Equivalent Yield represent?
- Weighted yield from the Term and the Reversion
How did the property fall against your comparable evidence in the end?
Market Rent:
- Towards the lower end of the comparable evidence - relfecting specification, size
Market Value:
- At the higher end of the yield evidence
- Reflective of the occupier, the remaining term, the rent, the location, specification
What were the clients requirements and how did you meet them?
- The bank required a valuation for secured lending purposes and detailed there requirements within the instruction and Terms of Engagement.
- They required advise on the value of the property
- Made secured lending comments:
*Age of the property
*Economic life
*Estimated marketing period
What competencies have you demonstrated and how?
Ethics, Health and Safety, Client Care, Conflict Avoidance, Data Management, Inspection, Measurement, Valuation, Loan Security Valuation
How did you abide by the RICS Rules of Conduct?
Competency - undertook competency checks prior to accepting the instruction
Good-quality and Diligent Service - Gaining copies of the lease documentation
Respect - Liaising with the client and the bank’s customer to gain full details of the property and arrange a successful inspection
What valuations have you done since that time that supports your valuation?
Valuation of industrial estate in Hull. 13 units of 1,250 sq ft. Very close location to the subject property.
- Evidence shows demand for industrial space in this location
- Investment evidence in the same region
- Have to account for the significant difference in size between the properties
How does the shared site work? Are there any agreements?
- Shared right of way within the leases
What else do institutional investors target in an industrial property?
- 8m eaves
- 5-10% offices
- c.40% coverage
- Profile metal cladding and blockwork to 2m
What were the EPCs on the properties?
- All rated C having been assessed a few years ago
- Advised that new EPCs would be required when re-let or refurbished
What is the likelihood of the units being let in the same configuration if brought to the market?
- Come available at slightly different times
- Could suit separation although difficulties with circulation space
- Spoke with agents and others within the firm
- Gained comparable evidence that proved similar units on the market
- Willbery Homes nearby comparable
What does the 1954 Act Protection mean?
- Both leases have Security of Tenure
- Potential for new leases at Market Rent
- Inserted void periods for vacating at end of lease
- Could potentially separate units a bit
What is the circulation space of the site like?
- Shared access
- Rettig self-contained yard
- Omar self-contained yard
- Limited circulation space to the centre of the site
- Reflected in comparable evidence
What did you include in your confirmation of instruction?
- Returned confirmation of the instruction
- Updated bank manager as to arrangements of site inspection
- Terms of Engagement signed and returned
What were the EPCs of the properties?
- Two main EPCs for the properties reflecting the largest units.
- Rettig C
- Omar D
- Others D rated
- Recommended that whilst these meet current requirements, there would be some reassessments required for a new letting
- A few years old so try to get new assessments for better reflection of current spec
What was the rateable value of the property?
- Total circa £300,000
What advice did you give to the client about the security of the investment?
- Covenant strengths very good
- WAULT - not long if assume break
- Potential to re-let, 9 month void factored in
- Chance to increase both rents to MR in near future
What is the Acid Test for checking if a tenant can pay rent?
- Compares short-term assets with short-term liabilities
- Determines the level of turnover required to pay the rent
- Ratio of 1:3
What was the turnover of the tenants?
- Omar = £70M
- Rettig = £80M
Why did you apply the same yields to both of the leases on the Term?
- Omar =
Worse condition
Longer lease - Rettig =
Land-locked - Both under-rented
You have identified a comparable at West Carr Business Park which is very similar. Why is the rate so different from £5.01 psf?
- Far smaller unit
- Quantum reflected for the difference in size of the property
- Similar at Amsterdam Road
Your comparable at Seafood Village Grimsby has a Long Leasehold with ground rent of £75,000 p.a. How do you reflect this when assessing the comparable?
- Deducting the ground rent from the income would create a profit rent
- This is then reflected in the yield which will be altered
What do you know about demand from this type of tenant in this location?
- Large quantity of caravan manufacturers in the location
- Willerby Homes
- Europa
- Delta
Are Rettig and Omar connected?
- Not connected
- Checked on Companies House
Why did you adopt a void period of 9 months to the Rettig reversion?
- Both 9 months
- Landlocked… however:
- Better quality unit than the other (more attractive)
- Less maintenance works to be done
How would you account for dilapidation’s in your valuation?
- LL has potential liability over dilapidation’s
- Lease stated to be returned to condition of occupation
- Some roof works to undertake
- Valuation reflects this in the yield
- Assume return to condition
- Building Surveyor for further investigation into dilapidation’s
What about business rates liabilities for the Landlord?
- Void period 9 months
- Business rates relief for 6-months
- Potential liability there
- Factored into the yield
How does the shared access route work? Who is responsible for it?
- The access is not within the demise of either tenant and is a communal area
- Therefore the Landlord charges a service charge to maintain the shared yard
- The rent I have capitalised is net of costs
- Yield reflected the condition of the property and site
- Can’t capitalise or profit from a service charge
