Level 3 - Industrial Unit, Crumlin

Question 1

Tell me about the property?

Answer 1

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

Question 2

What is Fair Value?

Answer 2

The price received to sell an asset or paid to transfer liability on measurement date. Use for IFRS reporting.

Question 3

Why did you report Fair Value?

Answer 3

Client adheres to IFRS

Question 4

What was the purpose of the valuation?

Answer 4

Regulated Purpose Valuation for Financial reporting

Question 5

Was it Red Book Compliant?

Answer 5

Yes, it was for the companys financial accounts

Question 6

What was your search criteria to find comparables?

Answer 6

40,000 - 80,000 sq ft in South Wales, excluding Cardiff
Detached, single let properties
Good site coverage

Question 7

How did you form Market Value? (Fair Value)

Answer 7

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

Question 8

If the property is owner occupied, why did you provide a VP value?

Answer 8

Upon the sale of the property, the occupier would no longer be in situ, therefore they required a VP value.

Question 9

What was the letting void?

Answer 9

6 months
Based on agents advice

Question 10

What was the assumed lease term?

Answer 10

5 years

Question 11

What was the MR?

Answer 11

£4.50 psf

Question 12

What was the yield?

Answer 12

7% Equivalent yield

Question 13

What was the Fair Value?

Answer 13

£3,100,000

Question 14

What methods of valuation did you use?

Answer 14

Investment and comparable

Question 15

What is a Regulated Purpose Valuation?

Answer 15

Valuation relied on by third parties who have not commissioned the valuation and subject to valuation monitoring

Question 16

What are the purposes of RPVs (5 reasons)

Answer 16

• Financial statements
• Stock exchange listing (IPO)
• Takeovers and mergers
• Collective investment schemes
• Unregulated property unit trusts

Question 17

Wat part of the Red Book governs RPVs?

Answer 17

UK VPS 3 (Regulated Purpose Valuations - RICS Valuation Monitoring)

Question 18

What are the monitoring requirements for RPVs?

Answer 18

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

Question 19

If limited VP evidence, what did you consider to form opinion?

Answer 19

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

Question 20

Why does interest rates affect the yield of a property?

Answer 20

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

Question 21

What happens to property values if interest rates go up?

Answer 21

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.

Question 22

Why did mini budget affect property values?

Answer 22

Economic uncertainty
Cost of borrowing increased - lower demand for property
Consideration for void periods and letting property

Question 23

How did you reflect the mini-budget in your yield?

Answer 23

I adopted a more conservative yield to reflect the increased interest rates and market uncertainty

Question 24

What is Fiscal Policy?

Answer 24

UK Government tool regarding Government spending and Tax

Question 25

How did the Fiscal Policy impact interest rates?

Answer 25

£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

Question 26

Tell me about your valuation in Crumlin?

Answer 26

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.

Question 27

When was the property built?

Answer 27

1970s

Question 28

How big is the property?

Answer 28

60,000 sq ft