Interview q&as Flashcards
VPS 1 - What is included with your standard Terms of Engagement?
ID & Status of Valuer
ID of Client
ID of other users
The property
Currency
Purpose of valuation
Basis of Valuation
Valuation date
Investigation extent any limitation
Nature of other information to be rely upon
All assumption and special assumptions
Format of the report
Restrictions on use, distrubuition and publication
Confirmation that it will be undertaken in accordance with IVS.
Fee basis
Firm registration and CHP
Statement saying that the valuation may be subject to monitoring from RICS
PII liability Caps
What are the extra Terms of Engagement?
- Fee basis
- Liability caps
- CHP
- Confirmation of IVS RB
- Valuation may be subject to RICS monitoring
Give me a couple of additional items that go into VPS3 Valuation Reports?
- Date of reprot
- Valuation apprach and reasoning
- Val figure
Describe the property of you case study
- Industrial unit of 27,000 sqf
- Steel portal frame with insulated profiled steel cladding and roof
- Clear Internal eaves of 10mt
- Electrically operated loading doors
- 7% of ancillary office
- Trade counter area
- Parking space to the front and enclosed yard area to the back
Why do you think the subject is highly individual property?
Because I established that users/companies in that area are mainly SMEs manufacturers who require floor space between 5,000 to 15,000 sq.ft.
Therefore demand for larger space is lower
Additionally, a large size of amenity land which the subject provides may perhaps be seen as an unnecessary surplus which does not add significant value to the property.
Why did you choose to select the units in Carnival Park and Pembroke Business Centre as you key comps?
Because I assessed the properties based
different parameters, such as location, condition, size and other facilities and established that on balance the two units could offer a similar level of rent
Why didn’t you give more weight to Thamesview?
Mainly because this comparable had a much smaller floor space and therefore based on grounds of quantum, would be able to achieve achieve a significant higher rent than the subject
Why didn’t you adopt the Investment method of Valuation instead of the Capital Value rate?
- I felt I had quality vacant possession sales evidence for both uses which I was quite familiar with and comfortable in adjusting to reflect the differences with the subject
- The client was very keen in testing the value in alternative way if possible and I also wanted do it a way I could avoid making an assumption for void periods.
- For the purposes the actual report, I did value the property using an investment method and similar void assumption which actually reflected a lower price
In you MVVP, why did you choose 1-3 Moss road and Unit 4, Airbone Close and not others that are arguably nearer?
- I was aware that these weren’t perfect matches to my subject, however, I gave greater weight to these comparables as there some key similarities with the subject, I had full information of the physical and transactional details which therefore give me greater confidence in implementing various adjustments accurately to reflect the differences between properties.
Why do you think Moss road which is in a arguably better location had a lower rate to the one you’ve adopted?
- With Moss Road there were many specification elements which matched with the subject and made it comparable, such as size, site coverage, similar industrial estate context, however, Moss has significant lower eaves height and consist of an older property. These two latter elements had great weight in determining an overall upward adjustment.
Why did Airbone Close, which is older and worse property, had a higher figure than your subject?
- Yes, Airbone was a poorer building and lacked of private yard but the similar location and smaller size counter balanced the adjustments and generate a similar price.
In your MVVP, why didn’t you apply a similar rate to Thamesview given that it was in a such a close proximity to your subject?
- Firstly Thameseview comaprable was under offer which meant that it would sit lower down the list of my hierarchy of evidence,
- Secondly, I would have applied a material discount on it based on ground of quantum
When comparing the subject to comparables, how did you account for the trade counter area?
Any unit that did not have a counter area I would apply a discount on it, but the downward adjustment % would be different and assessed on a case-by-case basis based on the overall range of factors.
Why do you adjust each comparable? what are you trying to achieve?
- I make adjustments on each comparable based on a range of factors. If the property has for example better qualities and therefore command a higher rate, than the subject, I would adjust the rate down wards viceversa if the I believe the property had poorer qualities.
The aim is achieve an accurate adjusted rate representing what the comparable would have sold if it had the same characteristics to my subject.
All your rental comps are very different to your subject, how did you arrive at your opinion of rent?
- I am aware that the comaprables collated are varied and generally smaller in size but each of the properties listed had at least 2-3 key factors comparable to the subject and also I considered these the most reliable piece as I had obtained full information on them.
- Essentially, in this occasion ranked all the comparable using the hierarchy of evidence obtained an adjusted rate and then did a sort of weighted average
Why did you take so long to deliver the valuation, when it normally takes 2-3 weeks?
Yes, I am aware of the unsual timeline, but this was a sort of calculated delayed as I made my client aware before agreeing the ToE that I would only be able, due to a large workload, to carry out the valuation in January and report within 3 weeks. My client was happy with the proposed arrangement and confirmed the ToE.
Does the lease allow any assignment?
he tenant can assign the whole of the demised premises but not part only and may sub-let the whole or permitted parts subject to landlord consent.
Why did you choose Carnival Park as your best rental comp?
- Carnival park was strongest comparable because there were some key features which made it very similar to the subject, such as yard, type of construction, and trade counter area.
- I know many agents who operate in that area, so the information regarding the property came from a primary source which enable me to adjust the rate with more confidence.
Why did you use the equivalent yield instead of split yiled?
- Given that larger weight that would be play the reversion period on the overall cap value of the investment and due to the detailed information that I had on rack rented investments, I felt more comfortable in finding the right yield for the reversion period and rather than coming up with an overall average equivalent yield that would perhaps rely on too many assumptions of voids MRs etc.
How do you adjust for dated transactions?
Treat with caution.
Speak with local agents
Look at Land Registry house price growth.
Describe the property of you case study
- Industrial unit of 27,000 sqf
- Steel portal frame with insulated profiled steel cladding and roof
- Clear Internal eaves of 10mt
- Electrically operated loading doors
- 7% of ancillary office
- Trade counter area
- Parking space to the front and enclosed yard area to the back
What is Gross External Area (GEA)?
The area of a building measured externally at each floor level.
What is Gross Internal Area (GIA)?
The area of a building measured to the internal face of the perimeter walls at each floor level.
What is Net Internal Area (NIA)?
The useable area within a building measured to the internal face of the perimeter walls at each floor level.
What are the differences between GIA and NIA?
NIA:
excludes columns
excludes shared internal walls
excludes common areas such as entrance halls, toilets, stairwells, lift.
GIA:
includes columns
includes all internal walls
includes common areas.
How do you measure an industrial unit? and what do you include and exclude?
GIA.
Include:
columns
lift wells
mezzanines with permanent access
loading bays.
Excludes:
canopies
fire escapes
Ancillary offices within an industrial unit would be measured using GIA.
How did you measure the vacant land?
I check that the boundaries matched the title plans and measured the area on Edozo
A trundle wheel could also be used.
What are the commonly used scales? and what scale was used for your plan?
1: 50 = Room Plan
1: 100 = Building Plan
1: 1250 = Street/Location Plan
1: 2500 = Location Plan
1: 50000 = Road/Walking Map
- 1:1250
Why do you have reference to title plans?
To ensure the boundaries are correct and that I am correctly measuring the Property.
What is the difference between GEA and GIA?
GIA excludes the external wall thickness whereas GEA includes them
How does a disto work? How can you check its accuracy? When is it least accurate?
A disto sends out a laser beam and measures the time taken for it to reflect which gives it a distance.
We check all distos before use by measuring a known distance in the office.
It become less accurate the longer the distance and it is very difficult to use outside over long distances because it is difficult to aim and see the laser.
How do you verify whether a Disto is accurate?
I check it hasn’t any damage on it (including lens)
I measure a know size
We send them periodically to the manufacturer to be calibrated
What sort of hazards did you have consideration of?
- Moving vehicles
- Material lying on the grounds on which I could trip on
What are you looking for on a valuation inspection?
Factors which can influence value:
location
condition
specification
tenure
aspect
defects
when inspecting, what elements do you look internally?
layout
specification
defects
services
fixtures and fittings
statutory compliance
When doing an external inspection of a building what elements would have consideration of?
method of construction
condition
access
car parking
defects
site boundaries
age of building
What would you look for in the immediate area in the context of valuation?
Market
- location
- situation
- amenities
- surrounding uses
- sale boards
- vacancy rates
Hazards
- environmental hazards
- contamination
- power lines
- flooding
What is the current institutional specification for industrial buildings (8)?
Minimum 8m clear eaves height with 10% roof lights
Minimum 30 kN / sqm floor loading
Plastic coated steel profiled cladding with brick or blockwork walls to approximately 2m
Full height loading doors (electrically operated)
3 phase electricity power (415 Volts)
5-10% office content and WC facilities
Main services capped off
Approximate site cover of 40%
What documents might your request before undertaking an inspection (4)?
Operation & Maintenance (O&M) manual
Asbestos register
Title plan
Floorplans
What would you normally measure in industrial unit?
- GIA
- Eaves height
- Loading bay
- Mezzanine
- Loading doors
- Site coverage
What is the structure of the RICS Surveying Safely 2018?
Personal Responsibilities for RICS Members and Firms
Assessing hazards and risks
Workplace Health and Safety
Occupational Hygiene and Health
Visiting premises and sites
Fire safety
Residential property surveying
Procurement and management of contractors
What are the principle of surveying safely guidance note?
the duty to ensure safety is extended to all members and not employer
the implementation of hierarchy of risk control
Visiting site premises and review risk even when on site
What is the safe person concept?
The person assumes personal responsibility for their own and colleagues and others health and safety while at work. This is contained within the RICS Surveying Safely Document.
What is the 4 step inspection methodology ?
Consider personal safety ( carry out a pre-inspection H&S risk assessment)
Inspection of local area
External inspection (top-down approach)
Internal inspection
What other documents do you know relevant to inspection?
Technical due diligence of commercial property 1st edition 2020,
The Guidance Note is split into key sections; Types of Inspections, Taking Instructions, The Inspection and The Report.
The aim of a TDD report is to facilitate the client (e.g. prospective purchaser or occupier) in making an informed decision from a technical perspective and any risks.
The Guidance Note defines four types of inspections, based on various stages in the property lifecycle.
These are:
Acquisition
Occupation and operation
Disposal
Refurbishment or development
Can you describe the residential block in Colchester
A new purpose built residential block, of 5 storeys with cavity wall constructions
The internals of the flats had modern specifications, with modern open plan kitchens and living rooms
Bike storage
EPC B
What are the characteristics of a new build property?
cavity walls
double glazed UPVC windows
UPVC guttering and drainpipes
damp course
solid floors
open plan rooms
carpeted / laminate flooring
What aspects do you consider when valuing a resi property?
- Location
- Access to transport facilities and other amenities
- Energy efficiency
- Wear and tear and condition of the property
- Age and construction of the property
- Specification f the internal
How can you tell the age of a building?
asking the client
planning consent
land registry information
local history records (historical maps)
architectural style
Lease
Date plaque or similar
Is there any RICS guidance on contaimination?
RICS guidance note: Contamination, the Environment and Sustainability (2010)
What is Japanese knotweed?
A
An invasive perennial plant that grows strongly and quickly up to 2m high.
It can damage surfaces such as foundations and tarmac.
Is there an RICS guidance for Japanes Knotweed?
Japanes Knotweed and Residential Property March 2022
What kinds of risks do you consider when undertaking an inspection?
Lone working
Asbestos
Accessing roofs and roof spaces at height
Hazards associated with derelict/empty properties
Confined spaces
Did you have consideration of Fire Safety? Are there any RICS guidance that you are aware of?
Yes, The Fire Safety Act 2021 requires all responsible person to assess, manage and reduce the risks of fire posed by the structure, external walls and common areas of a building.
RICS Guidance Note: Valuation of Properties in multi-storey, multi-occupancy residential buildings with cladding (2021)
The owner of the building had a EWS1 form which confirmed the cladding was compliant with current regulation
What is an EWS1 form?
Designed to be used for residential properties of any height i.e. blocks of flats, student accommodation.
Not designed for use for hotels.
Allows a “qualified professional” to confirm that an external wall system on residential buildings has been assessed for safety, in line with government guidance.
Considers:
the height of building
type of cladding & how much
presence of balconies & combustible material
Why is an EWS1 form needed?
Delivers assurance to lenders, valuers, buyers, residents and sellers.
It’s purpose is to ensure a valuation can be provided for mortgage purposes for a property with an external wall system.
Only used for a valuer & lender in determining if remediation costs affect valuer.
What are the 5 steps a duty holder must take in relation to asbestos?
Assess location and condition
Assess risk and create an asbestos management plan
Produce an asbestos register
Make the register available to all who may disturb it
Review register regularly (HSE recommends every 6 months)
Where is Asbestos usually found?
As picturised in the RICS Surveying Safely 2018, Asbestos can be found in many places.
Examples include:
roof sheeting and tiles
pipe lagging
insulation
textured coatings and paints
cement
guttering and drainpipes
What is the key asbestos legislation? and what are some of the principles?
The Control of Asbestos Regulations 2012.
non compliance is a criminal offence
provides obligations to the duty holder and employer
duty holder is the owner of the premise if vacant or a tenant if holding a repairing lease.
duty holder must undertake a risk assessment
all work is to be done by a licensed contractor
asbestos register must be produced and kept up to date
What is the Fire Risk Management Regulatory Reform (Fire Safety) Order 2005?
Risk assessment for fire prevention in non-domestic properties
Can you describe the property in Braintree? what you were looking to assess?
- It was in countryside context so the surrounding consisted of parcels of land, divided by post and rail fencing and walls
- I was looking to assess the condition of fencing, entrance gates and other boundaries and ground gravel
- I undertook a SoC to evaluate the condition of the property before and after of the works and to assess accurately any damage that may had occur
Describe Land in Upminster? What was the purposes?
The instructions was for agency purposes; Plot of land within the Green Belt extending 88 acres; The land included 2 developed plot with agricultural sheds covered with metal profile sheets
In Upminster, what was your reasoned advice with the disrepair?
- I identified the damage as being serious and potentially causing harm so breaching the H&S Act 1974, so advised the to undertake the repair as soon as possible and that I wouldn’t be able to carry out viewing until that was repaired.
- Under the H&S 1974, the owner would have responsibility to ensure safety in the premise
In Chelmsford, what was your reasoned advice with the trespass?
- That it would need to be resolved asap, as it constitutes breach of public liability warranty and in case of any injuries the insurance wouldn’t potentially be able to cover and damages;
The option that I advised were to resolve it either by negotiating an extent, move all equipment in.
What are commonly used measuring tools (4)?
Tape measure
Rod/kebab skewer
Disto/Laser device
Trundle wheel (used for measuring land)
Wooden folding tape
What tollerances are accepted under the measurement regs?
Tollerances are listed under Appendix A of the Property Measurment PS 2018 and are varied depending on the purpose;
In my sort of work I would need to adopt =/- 25mm
Can you describe the retail unit in benfleet?
- Mid-terraced shop unit with
- glazed frontage
- solid concrete floors
- staff facility and kitchen area on 1st floor
Can you describe the industrial unit in Witham?
- End of terrace unit
- Steel portal frame
- Insulated roof and elevation cladding
- 5% of ancillary office
- Front gate yard including car parking
- Eaves 7.5mt
- GIA 11,000 sqf
- Site coverage 45%
What are International Property Measurement Standards (IPMS)?
A global RICS-led initiative introduced mandatory Internal Property Measurements Standards and practices aiming to avoid current inconsistent definitions of measurement in different countries and bring greater global transparency.
What is the difference between IPMS 3 Office and NIA?
5 differences:
IPMS 3:
- measures to the IDF, and not to the internal wall surface
- Includes but states separately Limited Use areas, such as height below 1.5 mt, and internal structural walls (whereas NIA excludes them)
- Includes columns (and NIA doesn’t)
- Party walls are measured to the centre line (whereas NIA measures to the internal surface wall)
- Includes terraces and balconies (and NIA excludes them)
What is the difference between GIA and IPMS 2 Office?
GIA:
- excludes balconies, covered galleries and rooftop terraces.
IPMS 2:
- Balconies, covered galleries and rooftop terraces are included but stated separately.
measures to IDF, window reveals included if IDF
What is the conversion from acres to hectares?
1 acre = 0.4046 hectares.
1 hectare = 2.471 acres
If a retail has return frontage, what would you do?
There are various ways:
- Adding a percentage to the overall rent or to the ITZA area (say 5%)
- Measuring the return affected area and adding a percentage to that affected area (10% say)
- Adding an amount per linear metre run if the return frontage to the ITZA
What measurement would you take on a retail property?
- NIA
- shop depth
- Gross and net frontage
- Any limited use area to deduct from the NIA
what is zoning? what is the benefit of zoning?
- It’s a technique used for comparing retail properties
- it consist in splitting a retail areas into zones of generally 6.1mt deep.
- Zone A is the area closer to the shop frontage and with a higher value, and the zones behid that are valued using a halving back principle
- Normally retail shops are split into 3 areas, A, B and C plus remainder
- remainder will have normally a 1/10 value of zone A
- It allows a valuer to compare any retail shape property as it is assessed on a consistent approach
What is the Red Book?
The Red Book is a framework containing mandatory rules, best practice guidance and related commentary for all members undertaking valuation work across the globe.
What are the key updates to the latest Red Book Global?
- Term of Reference must be clear and unambiguous, in that valuation are either Red Book complaint or not (quasi- or non-Red Book are term not to be used)
Sustainability:
- VPS2 and 3 puts greater emphasis on Sust and ESG factors
- VPGA2: ESG and Sust factors should form an integral part of the valuation approach; commentary may be also be required on the maintainability of income, and on future cost liabilities to meet changing regulations and investors expectations
- The inclusion of direct and indirect valuation relevance and physical and transition risks under VPGA8
- Definition and scope of valuations contained within the IVS
- VPGA1 (val for finacial reportg) ref to IFRS 13 and IFRS 16
- A non-exhaustive list of properties that require the use of the profit method, such as student housing, self-storage etc
Why is it important to value using Red Book standards?
In order to ensure that I am providing accurate, reliable valuations that are in line with the industry standards and best practice
Name some of the statutory Duediligence that are required to be undertaken for a valuation?
- Asbestos register
- Equality Act Compliance
- Business rates/Council Tax
-Contamination
-Environmental issue
-Randon Gas
-Flood risk
-EPC rating
-Fire Safety
-highways
-legal title
-tenure
-land registry
-planning history
What does the Profit method consist and for what type of property do use it for?
The profit method is used for trading related properties, that are designed for a specific use and where its the value reflects in the trading potential i.e. Hotels, restaurants, night clubs.
- The valuer needs to first establish the Fair Maintainable Operating Profit (FMOP= Turnover - Business costs) or EBITDA(Earnings Before Interest Taxes Depreciation and Amortization) achieved by a Reasonable Efficient Operator (REO).
- Then capitalize the FMOP by the appropriate All Risk Yield (rate of return).
- It’s always good practice to check result with comparable sales if possible
What is DRC and what it’s used for? and how does the DRC work? what types of obsolescence exist?
It’s the method used for specialized buildings, where there’s limited or unavailable market evidence i.e. schools, fire stations. This method is used for accounting and rating valuations.
Methodology:
- Determine the existing use of the land
- (current costs of replacing the building + fees) - (deprecated and obsolescence/deterioration)
- Physical obsolescence - wear and tear of building
- Functional obsolescence - where design of the asset no longer fulfils the function of what was originally designed
- Economic obsolescence - life cycle of the building
What does the RICS guide on comparable evidence recommend?
The guide outlines principle of comparable method and provides advice when dealing with little comparable evidence. Any source of rental data can provide good comparable evidence as long as it is fully validated and appropriately analysed. Also sets out a non-perspective hierarchy of evidence that valuer should use:
What does PS1 of the Red Book Global cover?
PS 1 - Compliance with standards and practice statements where a written valuation is provided.
Looks at application - when a valuation needs to be Red Book Global compliant.
Details the 5 exemptions.
What does PS2 of the Global Red Book cover?
Ethics, competency, objectivity and disclosures
VPS 3 - can you give preliminary (draft) valuation advice?
Yes, however it must be:
- marked as a draft, subject to completion of the final report
- marked for internal purposes only
- stated that it cannot be relied upon and can’t be published.
VPS 4 - Define a special assumption?
A special assumption is a supposition that differs from reality but is taken to be true and accepted as fact, even though it is not true.
e.g. special assumption of a 90 day sale period.
A special assumption must be agreed with a client in writing at the commencement of an instruction.
VPS 2 - why must valuers inspect?
To verify the physical aspect of the property and that the necessary information being relied upon for a valuation to ensure the information is professionally adequate for its purpose
VPS 2 - are desktop reports Red Book compliant?
Yes, however the valuer should consider if the restriction is reasonable and confirm this in the limitation sec of ToE
VPS 3 - can you discuss the valuation report with the client prior to issuing?
Yes you can, however, you must not be influenced by the client in any way.
Any information given by the client in the discussion, must be stated within the report
VPS 4 - Define Market Value?
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
- where the parties had each acted knowledgeably, prudently and without compulsion.
VPS 4 - Define Market Rent?
The estimated amount for which an interest in real property should be leased:
- on the valuation date
- between a willing lessor and a willing lessee
- on appropriate lease terms
- in an arm’s length transaction,
- after proper marketing and
- where the parties had each acted knowledgeably, prudently and without compulsion.
VPS 4 - Define Fair Value?
The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
VPS 4 - Define Investment Value?
The value of an asset to a particular owner, or prospective owner for individual investment or operational objectives
What does VPS3 relate to?
Valuation reports
What does VPS3 relate to?
Valuation reports
When undertaking a loan security valuation, what parts of the Red Book would you have view on?
VPGA 2 and VPGA 10 of UK National Supplement.
Can you value a property that your agency team has sold?
Under RICS Professional Statement: Conflicts of Interest - UK Commercial Property Market Investment Agency (2017).
You can be both the agent for the seller and the valuer for the lender/purchaser - however, must be disclosed and agreed in writing.
What specific elements would you look at for environmental factors?
Flood risk
EPC
Current and Historic use
Contamination
Invasive species
When is Fair Value required as a basis of value?
When the client has adopted IFRS for their accounts
What is the Review of Real Estate Investment Valuations?
It’s a report commissioned by the SRB and prepared by Peter Pereira Gray to address the process of how to carry out Investment Valuations in view of of the rapidly changing markets;
The key recommendations are:
- the creation of a Valuation Commission Officer role within regulated valuation providers
- Creation of an independently-led valuation regulatory panel
- Adoption of DCF as principal model for preparing property investment valuations
- Rotation process for valuers
What is a DCF?
It’s a tool that can be used for valuing investment assets, and which involves estimating future cashflows that the asset is expected to generate and then discounting those cashflows back to their present value using a discount rate.
What is the UK Red Book National Supplement?
It’s a supplement guide to the Red Book Global, which provides 18 valuation practice guidance ( it is not a substitute);
What are the pros and cons between a DCF and conventional method of valuation?
Pros:
- DCF includes a detail projection of future costs, growth and therefore more is a more objective method for valuing;
- Conventional method, it’s a more simple and straight forward valuations method that doesn’t need detailed data inputs or assumptions
Cons:
- DCF needs large amount of data and assumptions
- CM requires large amount of comparables and a slightly more subjective assessment
What is the industry regarded profit test? and why is 3 times?
- The profit test is regarded as the the Net Profit being at least 3 time the annual rent for 3 consecutive years or the net asset value to be 5 times the rent for 3 consecutive years.
- this is because it takes into account rent rates and staff remuneration
What is hope value?
The element of value of land over and above the existing use value which reflects the prospect of potential development/alternative use.
Hope value generally lies between the EUV and its Development Value/Alternative Use and can increase as the likelihood of a new alternative use becomes more certain.
How do sustainability factors may impact valuations?
- Operational efficiency: properties that are not energy efficient are generally more expensive to run therefore receive less demand from users and reduce value
- MEES compliance: property with high EPC rating that fall below the acceptable range cannot be rented so will incur in voids and are subject to large capital expenditure sums to bring them up to standards and therefore negatively impact on value
What are the differences between quantitative and qualitative adjustments?
- A quantitative adjustment consist in quantifying in money terms the adjustment to apply on certain comparable and apply that allowance
e.g. if have two comparable properties that in different state of repair, an adjustment could be made to allow for the costs of renovating the property in poorer condition up to the standard of the better building. - A qualitative adjustment are allowances based more on professional judgement and knowledge of the local market where there is no direct evidence to quantify the degree of adjustment required.
E.g. view of the property, footfall exposure, tenant covenants
What are 3 takeaways form the Comparable Evidence in Real Estate Val GN 2019?
- The importance of verifying evidence
- The hierarchy of evidence
- Making adjustments and be transparent about the adjustment made
- recording clearly the comparable evidence and kept on file.
Describe the industrial property in Witham:
- End of terrace, light industrial unit
- Portal frame construction with insulated cladding elevation and roof coverings
- GIA 11 sqft, 7.5 mt eaves height going
- Front gated yard including parking
- SIte coverga 45%
- Presence of mezzanine
- 1 Loading door with eletric shutter (3.5h x 3.8w)
- EPC rating D
- Good accessibility to A12
Witham example, how did you structure the investement method?
T&R I capitalised the passing rent for the unexpired term but defferred Reversion by 9 months to incorporate a void (6 months) and rent free period (3months) at the start
How would you value a property that has an EPC falling outside MEES regulations?
I would either recommend the client:
- to obtain a cost estimate for bringing the EPC rate of the building up to compliant standards and reflect the impact of those costs in the valuation
- or if there are sufficient comparables of similar property with low level energy rating, I will adopt a similar rate
How does a low EPC rating affect the lenders ability/perspective?
A property with low EPC rating may reflect a risk with regards to the maintainability of the income over the life of the loan; for example:
- a low energy efficiency building my have high operating costs and therefore affect the profitability of a tenant and therefore its ability to pay the rent to the borrower
- A low energy rating that is due to fall outside the MEES, can have a short term income generating potential and therefore not guarantee it’s ability to repay the loan through its income
What is a sensitivity analysis? and what is t used for?
A sensitivity analysis allows a valuer to test the the profitability of a scheme by changing key inputs of an appraisal, such as GDV, yield, build costs, finance rate or phasing.
It’s used to identify the level of risks and uncertainty associated with the project and allow developers make informed decisions about the level of investment
What is WAULT? What is this ration mainly driven by and what is its purpose?
Weighted Average Unexpired Lease Term
- WAULT is calculated by multiplying the remaining term of each lease by its rental value
- adding all lease values figures together
- and then diving it by the total annual rent
- This calculation takes into account that longer leases provide greater income security than sorter leases, and thus have a greater impact on the overall value of the building/potfolio
- WAULT is a useful metric for property investors to assess the income profile and for comparing against other multi-let properties
What is the difference between a open market letting comp and a comp arising from rent review?
- An OML would normally have more wait as this type of value is being determined openly between two parties without any special conditions or restrictions;
- the rent review is a value determined by taking into account certain terms and restriction contained in an existing lease
Why would a SWOT analysis be useful in valuation?
A SWOT analysis can help identify the internal and external factors that affect value of a property, such as tenants covenant, market conditions, conditions etc
What is the difference between Net Effective Rents and Headline rents? How can NER be determined?
- A headline rent(or face rent) is the quoted rent by landlords which does not include any incentives or discounts, such as rent free periods, fit-out periods, service charge waivers, that the landlord may offer to attract tenants
- NER is actual rent paid by the tenant over the term of the lease, after deducting an incentives or discounts that the landlord may have provided.
NER can be determined with a Straight line method, Straight line method assuming time value of cash flow using a yield(n will be the no. of years and i the inflation) or by using a DCF.
What’s an incentive?
Any form of inducement or concession made by either party:
- Rent free periods
-Stepped rents
-Capital contributions
-Premiums
What is a yield? How is calculated and represented?
It is a measure of investment return, expressed as a percentage of capital invested * Calculated as income divided by price x 100
What is Internal Rate of Return? What represents?
It’s a financial metric that measures the profitability of the scheme and potential returns.
It is the interest rate at which the net present value of all cashflows is equal to zero.
That means that the higher the IRR the more profitable a scheme is.
What are the RICS documents relevant to valuation & ESG?
- Sustainability and ESG in Commercial Property Valuation and Strategic Advice 2021.
What was your reasoned advice for the Billericay valuation?
- I confirmed the suitability of property for lending purposes, as the asset offered good a marketability profile
- I confirmed that there were no physical, environmental matter that would have a significant impact on the value
What was your reasoned advice for the West-cliff Bay valuation?
- I confirmed the suitability of property for lending purposes, as there was a general strong demand for that type of property with good energy efficiency
- Under VPS2 and VGA8, I confirmed that there were no environmental and physical matters that could have a material impact the property value
what is the margin of error for valuations? What is the leading case?
- Case law: Singer & Friedlander vs JD Wood (1977)
The acceptable margin of error varies depending on the type of asset to be valued.
For example, the margin of error for a standard residential property with a good level of evidence is +/- 5% ; for a one-off commercial property can go to +/- 10%, but courts have accepted up to 15%;
Under VPGA2, what additional recommendations a valuer should give if the property is held as investment?
- summary of occupation leases
- commentary on passing rent vs market rent
- Comment on the market’s view with respect to the quality and strength of the tenants
- Comment on the maintainability of income over the life of the loan - Consideration of maintainability of income in the context of ESG and sustainability
What difference would allow when valuing between new built flats and second hand flats?
It depends but normally between 10-20%, due to the facts that new built flats are normally provided with better energy efficiency systems, modern fittings and there is absence of wear and tear. Also, new built flats would a NHBC warranties that cover against any defects.
In billericay, what was your valuation methodology?
- In respect of the retail unit I have assumed:
o On the reversion of current lease an average of 6 months void period + 6 months’ rent free
o Applied an average 7% Y on term due to the security of income and rental growth
o and 8.5% on reversion due to the uncertainty of covenant strength, risk in re-letting the property and dilapidation issues
In Billericay, how did you check dilapidation aspects with current tenants?
- I checked the lease terms and established that the repairing liabilities were tenant’s responsibilities so assumed that the tenant would bring the property back to its conditions
In Billericay, how did you assess the covenant strength of the current tenants?
- I was unable to assess some of them on D&B so I looked at their accounts on Company House and verified that their net profit was proportionate to the rent obligation and also verified their history and spoke to local agents
In West-cliff, What other due diligence have you considered?
- Flood risk was very low being on a hill
- Tenure FH was confirmed
- Physical site boundaries complied with the title plans
- Plans of internal layout was also compliant
- No contamination or other environmental matter that could impact the value
- From our research all planning conditions were fully discharged so we assumed that the houses all benefitted from full planning permission and Build Regulation consent
In West-cliff, How did you confirm that the subject units were suited for the intended purpose of loan security?
- From the due diligence undertaken, I verified that there were no environmental circumstances that could severely affect the value of the property
- From a market analysis, I established that there was strong demand for energy efficient residential properties
- All of the EPC ratings were within the MEES standards
Describe Billericay?
- 1980s inner terrace block with cavity wall construction along Billericary highroad, with 4 retail units on GF and 3 offices on the upper floors
What is an S-curve? please describe it
It’s a graph showing the patterns of cashflow of a typical development project
Typical scenario of curve:
- The usual curve will normally start at a low level and increase gradually as the project progresses.
The curve will reach its peak during the middle of construction, when the majority of costs occur and then tail off towards the end of the development period, to reflect the completion of the project and the realisation of revenue
What is the S-curve used for?
The S-curve is useful for assessing cashflow requirements over the development time period and tailor eventual loan to it
What are factors can influence interest rates?
Risk profile of the development project
Risk profile of the developer, whether they are an established company or not
What is affordable housing?
It includes social and affordable housing provided to eligible households whose needs are not met by the market and therefore it’s provided at an affordable price.
What ways can GDV of affordable housing be valued?
By comparable evidence extracted from similar developments in same area
By capitalising the net annual rents and summing those up with the capital receipts from initial equity
Adopting the subsidy provided by Registered Providers
What is CIL?
Community Infrastructure Levy, and It’s a fixed planning payment obligation for new development to help fund new infrastructure in the local area;
Give me brief summary of your appraisal in Nine Elms?
S: to verify whether the asking price proposed by the client would be able to attract a sufficient level interest and provide appetite for multiple buyers, in the current market conditions
T: Carry out an appraisal based on various assumptions, and fixing the asking price to see what level of profit would the site generate
A: Collate key inputs to include in the appraisal; cross checking the Build costs provided by the client with the BS surveying team to ensure this was appropriate
R: I determined a Profit on Cost of 10% which I believed would be seen too low for attracting a good level of demand / high risk of becoming unviable
In the Nine Elms appraisal, what was your conclusion and why ?
The asking price was too high for attracting demand from developers (Profit generated 10% on Cost), as I believed that the expected profit level for that scheme in current market condition should have been of 15-18% of Costs
What sort of target profit margins would you expect in average risk developments?
18-20% of Cost
16-18% of GDV
The target profit will depend on the risk profile of the development, the size and its complexity
What are marketing costs? and how much would you expect to account for those?
The costs associated with selling the units such as advertisements, show homes, brochures, EPCs
2.5-3.5%
What are the standard inputs in development appraisal?
GDV
Build Costs (contingency 5% but varies)
Professional fees (8-12% based on complexity)
Planning cost (S106, CIL, S278 for highway)
Finance costs (7%)
Sales and marketing (2.5-3.5% of GDV + legal fee £750 per unit)
Profit
Land acquisition costs
## Residual land
What is a Montecarlo simulation? Why is it used?
It is a type of sensitivity analysis which is based on a statistical model.
It estimate the likelihood of achieving certain financial outcomes, based on the low and high markers range that I set out.
Is used to evaluate the risks and uncertainties associated with a development.
What is your reasoned advice with Bromely Road
My advice was that the appraisal, based on the historic land price, had shown a increase of profit due to an increase in sales values, reduce marketing costs and a shorter borrowing period which reduced the total amount of interest and fees paid over the construction period
What is profit erosion?
It indicates the time it takes for the proft to erode from the completion of the development, due to empty rates, service charges and interest costs, following the completion of the scheme
Give me your reasoned advice for Purford Green? expand why?
My advice indicated that the development design proposal prepared by the client had high chances of becoming unviable.
The scheme included a number of renewable environmental features such as solar panels and heat source pump which were pushing costs up and consequently producing slim margins.
n Purford Green, how did you establish that the there was limited demand in that area for the design proposal?
I undertook a comparable method to determine the GDV, which indicated that premium sales values achieved in that weren’t high enough for justifying the type of design proposed.
What sort of performance measures can you use in a development appraisal?
Profit on Cost or GDV
Profit Erosion
IRR
What is the difference between a development appraisal and a residual valuation?
Development appraisal: establish the viability/profitability of a proposed development and helps developer choose from different sites
Residual valuation: establish the market value of the land and is based on mainly market inputs
