Loan Security L2 and L3

Question 1

What can you tell me about the valuation of the East Lancashire industrial property?

Answer 1

• Owner occupied weaving mill
• 40,000 sq ft GIA (offices 5%)
• Site 2-acres (40% coverage)
• Rate of £50 psf
• Value £2M

Question 2

Why did the bank require MV1, MV2 and MR bases?

Answer 2

As part of the bank’s loan security, they require three bases which show the property in different states, in order to reach their conclusions about the security of the property.

Question 3

What were the MV1, MV2 and MR values for the industrial property in East Lancashire?

Answer 3

MV1 - £2M
MV2 - £1.5M (20%)
MR - £200,000 p.a.

Question 4

What can you tell me about the out of town retail investment valuation in Hull?

Answer 4

• Investment property
• National retailer tenant
• 10,000 sq ft
• 6 years unexpired – RR in 4 months
• £95,000 p.a.
• Term and Reversion

Question 5

How did you reach the valuation for the out of town retail property in Hull?

Answer 5

• Term: Passing rent £95,000 p.a. @ 7.5% yield (strong tenant and short-term)
• Reversion: MR £100,000 p.a. @8.5% to end of tenancy
• Insert voids of 6 months marketing and 3 months rent-free
• MR into perp at 8.5% def
• MV - £1.2M

Question 6

Why did you change the yield on the reversion?

Answer 6

• The reversion was to a higher rent than was currently being paid, and for a longer term – therefore reflecting more risk
• On the reversion after the tenancy, another national tenant would likely occupy the store and reflective of comparable evidence

Question 7

What can you tell me about the valuation of the Accrington Industrial property?

Answer 7

• Industrial warehouse with offices
• 60,000 sq ft GIA (c.30% offices - very high spec)
• Previously inspected before refurbishment of £2M

Question 8

How did you reach the valuation for the Accrington Industrial property?

Answer 8

• Identified comparables (£85 - £120 psf)
• Adopted rates of £85 psf for warehouse
• Rate of £100 psf for offices
• This produced MV of £5M

Question 9

• Why did you adopt a separate rate for the offices (Accrington)?

Answer 9

• They had been recently refurbished to a very high standard
• Provided offices above a usual % for an industrial property
• Had meeting rooms, training suites and glass partitioned offices
• Sectioned off to the front of the property, car park and self-contained access

Question 10

• How did you determine the value of the office element (Accrington)?

Answer 10

• The comparables had offices of lower percentages – represented more the unit value.
• Researched comparables within business parks for office spaces and determined a rate from here.

Question 11

What did you provide within the SWOT Analysis for Accrington?

Answer 11

S- Property of a very high refurbished specification, within a popular industrial estate with good accessibility.

W - However in a secondary location

Question 12

What can you tell me about the trade counter investment property in Scarborough?

Answer 12

• Trade counter property of two units joined
• 10,000 sq ft (50% retail)
• Within industrial estate
• 3 years remaining to end of lease

Question 13

• How did you reach the MV (Scarborough)?

Answer 13

• Used Term and Reversion Method
• Term: Passing rent of £45,000 p.a. for 3 years @ 7%
• Reversion: £50,000 p.a. into perp def 3 years @7.75%
• Total = £500,000 after purchaser’s costs

Question 14

• Why did you adopt the Term and Reversion method (Scarborough)?

Answer 14

• Explicitly valued the investment based on the passing income and tenant, and the reversion when let at MR to an unknown tenant.

Question 15

• How did you establish MR for the property (Scarborough)?

Answer 15

• Adopted a rate of £4.50 psf to the 10,000 sq ft area of the property.

Question 16

• What voids did you assume on the property, and why (Scarborough)?

Answer 16

• 3-months marketing period – property in demand
• 3-months rent-free – market average