Level 3 - Industrial Unit, Crumlin Flashcards
Tell me about the property?
Located in Crumlin
large, circular site with 22% site cover
Detached unit
1970s
60,000 sq ft
steel portal frame with pitched roof and profile metal cladding
4 roller shutters
6m min eaves
15% office conent
What is Fair Value?
The price received to sell an asset or paid to transfer liability on measurement date. Use for IFRS reporting.
Why did you report Fair Value?
Client adheres to IFRS
What was the purpose of the valuation?
Regulated Purpose Valuation for Financial reporting
Was it Red Book Compliant?
Yes, it was for the companys financial accounts
What was your search criteria to find comparables?
40,000 - 80,000 sq ft in South Wales, excluding Cardiff
Detached, single let properties
Good site coverage
How did you form Market Value? (Fair Value)
Limited Evidence, but found wider South Wales comparable yeilds and made adjustments
Investment method, capitalising a hypothetical income stream based on MR.
6-month letting void
5 year lease
6-month rent free
7% yield
If the property is owner occupied, why did you provide a VP value?
Upon the sale of the property, the occupier would no longer be in situ, therefore they required a VP value.
What was the letting void?
6 months
Based on agents advice
What was the assumed lease term?
5 years
What was the MR?
£4.50 psf
What was the yield?
7% Equivalent yield
What was the Fair Value?
£3,100,000
What methods of valuation did you use?
Investment and comparable
What is a Regulated Purpose Valuation?
Valuation relied on by third parties who have not commissioned the valuation and subject to valuation monitoring
What are the purposes of RPVs (5 reasons)
- Financial statements
- Stock exchange listing (IPO)
- Takeovers and mergers
- Collective investment schemes
- Unregulated property unit trusts
Wat part of the Red Book governs RPVs?
UK VPS 3 (Regulated Purpose Valuations - RICS Valuation Monitoring)
What are the monitoring requirements for RPVs?
Rotation period of 7 years
individual valuer and firm confirm how long they have been valuing the property
confirmation of % of C&W turnover comes from that client - 5% of total fee income must be disclosed
If limited VP evidence, what did you consider to form opinion?
Wider South Wales Evidence to find a guide on yield
Applied an opinion of MR based on evidence
Made yield adjustments: location, specification, age, VP Risk
Why does interest rates affect the yield of a property?
An investor can get a risk-free return in the bank / gilt, therefore requires a risk premium for investing in property.
If interest rates go up, yeilds would go up to reflect that risk premium
What happens to property values if interest rates go up?
Value go down
Investors require risk premium, therefore, greater return on property investment. Greater required return, means lower capitalisation rate, which lowers value.
Debt more expensive, therefore demand for money falls and so does demand for property.
Cost of borrowing - greater margin of return.
Why did mini budget affect property values?
Economic uncertainty
Cost of borrowing increased - lower demand for property
Consideration for void periods and letting property
How did you reflect the mini-budget in your yield?
I adopted a more conservative yield to reflect the increased interest rates and market uncertainty
What is Fiscal Policy?
UK Government tool regarding Government spending and Tax
How did the Fiscal Policy impact interest rates?
£45bn in unfunded tax cuts which had inflationary pressures due to cost of UK borrowing.
Financial Markets concern over inflation
Increase cost of borrowing to mitigate inflation
Tell me about your valuation in Crumlin?
Point 1 – Red Book Valuation of a detached industrial unit on the bases of MR and Fair Value
Point 2 – The Valuation date was shortly after the mini budget therefore I had to adjust my yield profile accordingly
Point 3 – I used comparable evidence and investment method to determine my yield and reported a fair value to my client.
When was the property built?
1970s
How big is the property?
60,000 sq ft
