Level 3 - Avonmouth Flashcards
Tell me about this Property?
Main industrial area in Bristol
1990s building, steel portal frame with profile metal cladding, glazed front reception and two storey office accomodation
10,000 sq ft
eaves 5.75m with yard space and site cover 35%
What is a long leasehold interest?
A freeholder owns the property/land. but someone else has the rights to use it, contained within a lease.
How big was the property?
10,000 sq ft
How does the property tenure impact suitability for loan security?
Ensure the bank has interest in the property during the loan
What unexpired term would cause concern?
60 years
Talk me through your MV approach?
Investment method
Collated evidence across comparable locations of single let sales
NIY basis as that is what comparables were on
Yields ranged between 5.5% - 7.67%
Discussed evidence with colleagues
capitalised MR of £8.00 psf income at 7.25%
What was your comparable search criteria? MV
Comparable FH or LLH investments in good industrial locations.
Strong Tenant covenant
Specification features and size
What was your Market Value?
£1,650,000
What adjustments did you make from your comparables?
Comparables were FH - less risk
Specification - some superior
Tenant Covenant
WAULT - longer unexpired term
How did you calculate WAULT?
Single let - so just remaining time to lease event
How did you determine the reasonableness of the loan?
I cannot advice on if a bank should facilitate the loan
I advised on the properties attributes and value that would provide reasonable suitability for loan purposes
What was your yield?
7.25% Equivalent
What was your Market Rent?
£8.00 psf
What was the unexpired term of the LLH?
93 years
Why does the length of bank loan matter?
The bank loan was 5 years
If loan longer than unexpired term, it would not provide security as borrower is no longer has an interest in the property
Why is 88 years an adequate amount after the term of the loan?
Lenders may have caution about lending to short unexpired terms due to the risk of marketing if they had to repossess the Property
Did you find any LLH comparables?
I found one LLH evidence in Gloucester.
It was a sale that had a new lease in place, a longer unexpired term and good covenant.
It was better specification
Yield of 5.5%
What adjustments did you make to FH comparables?
I deemed FH comparables less risky due to not having a long lease present.
FH less risky because purchaser has sole rights over it
No ground rent
Reflected in yield profile
Why was it only reasonable security for loan? Why not good?
Due to the inherint risk of an LLH with a diminishing unexpired term
Tell me about your valuation in Avonmouth for Loan Secuirity Purposes
Point 1 – I valued a LLH industrial asset in Avonmouth with an unexpired term of 93 years with a loan term of 5 years
Point 2 – I used the investment and comparable method to determine MV and making suitable adjustments for FH evidence
Point 3 – I outlined the property was suitable for loan security however outlined adjustments based on specification and unexpired term. Producing a 7.25% equivalent yield and £1,650,000 CV
