Vals & Loan Sec Flashcards

Question

What's your understanding of where yields are currently?

Answer 1

Offices: West end prime - 4% (Mayfair) 4.5/4.75% (Soho/fitzrovia) City prime - 5.5-5.75% South east towns 7%-8% or 10%+ for secondary FLIGHT TO QUALITY Retail: Prime towns 6.75% Bond Street 2.75-3% Oxford Street 4.5% Supermarkets: 5-5.5% - morrisons higher than tesco/sainsburys Industrial: Prime c. 5%, can be stronger inside M25 Estates c. 5.25-5.5% prime or 6.5-7% secondary Residential: Prime London c. 5% (e.g. Zone 2 good quality)

Answer 2

A form of investment method/income approach Growth explicit Take future incomes and expenses, including exit yield/price, and discounts those to arrive at a current value used for valuations where cash flows are explicitly estimated over a period of time e.g. short leasehold interests, social housing, some alternative investments

Answer 3

The sum of discounted cash flows of the project, can be compared against target rate of return

Answer 4

The rate of return/discount rate that makes the NPV of a project zero, used to assess the total return from an investment opportunity

Answer 5

Used for valuations of trade related property e.g. pubs, hotels, golf courses, nurseries The value of the property depends upon the profitability of its business and trading potential Must have accurate accounts if possible for 3 years, decide on a Fair Maintainable Operating Profit (FMOP) and capitalise at an appropriate yield

Answer 6

Used for properties that don't generate an income e.g. schools, hospitals, police stations OR where direct market evidence is limited/unavailable e.g. oil refineries, docks Two steps: 1. value of he land in its existing use 2. Add the current cost of replacing the building plus fees, less a discount for depreciation (judge level of obsolescence) Not suitable for Red Book secured lending valuations - typically owner-occupied for financial reporting

Answer 7

A method to ascertain the current value of a development/potential development site. GDV less costs = residual Costs include build costs (+demolition, planning etc), professional fees (architects, project managers etc), contingency, marketing/sale fees, finance costs, developers profit Check resulting residual with comparable site sales if possible

Answer 8

Guidance required for Red Book compliance valuations Professional Standards (PS) (standards to adhere to) Valuation Technical and Performance Standards (VPS) (what you must include, basis of value and approach) Valuation Practice Guidance Applications (VPGA) (Types of valuation e.g. financial reporting, secured lending) International Valuation Standards (IVS)

Answer 9

Compliance with standards and practice statements where a written valuation is provided

Answer 10

Ethics, competency, objectivity and disclosures must act in accordance with RICS Rules of conduct must act objectively and independently identify and manage conflicts of interest, or reject instructions if you can't Must comply with minimum requirements for terms of engagement and demonstrate competence

Answer 11

MANDATORY except for 5 uses: (ALIES) Agency Purposes Litigation or negotiation Internal Purposes Expert Witness Statutory Purposes (except for tax returns/financial reporting)

Answer 12

VPS 1 - terms of engagement must include: 1. name and status of valuer 2. name of client 3. any other intended users 4. asset to be valued 5. currency 6. purpose of the valuation 7. basis of value 8. valuation date 9. extent of investigation 10. nature of information to be relied upon 11. assumptions and special assumptions to be made 12. format of the report 13. restrictions for use, distribution and publication 14. confirmation of Red Book Global compliance 15. fee 16. complaints handling procedure 17. statement that valuation may be subject to compliance by the RICS 18. Limitation on liability agreed

Answer 13

Inspections, investigations and records must verify information relied upon and keep records of inspections, due diligence, evidence etc

Answer 14

Nature of restriction and possible implications agreed in writing Consider whether restriction is reasonable with regards to the purpose of the valuation The restriction must be referred to in the report

Answer 15

Must be no material changes since last inspection must be confirmed in terms of engagement and report

Answer 16

Valuation reporting - include: 1. identification and status of valuer 2. client and other intended users 3. purpose of valuation 4. asset being valued 5. basis of value 6. valuation date 7. extent of investigation 8. nature of information relied upon 9. assumptions and special assumptions 10. restrictions on use, distribution and publication 11. instruction undertaken in accordance with IVS standards 12. valuation approach 13. valuation figures 14. date of valuation 15. comment on market 16. limitations on liability agreed

Answer 17

The estimated amount for which an asset 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 acted properly and without compulsion

Answer 18

Market Value Market Rent Fair Value Investment Value

Answer 19

The estimated amount for which a property should be leased: On the valuation date Between a willing buyer and a willing seller AND On appropriate lease terms in an arm's length transaction after proper marketing where the parties acted properly and without compulsion

Answer 20

The price that would be received to sell an asset in an orderly transaction between market participants The RICS view is that it is generally consistent with Market Value, but Fair Value is required for IFRS reporting

Answer 21

Choose appropriately and justify

Answer 22

VPGA 1 Valuation for Inclusion in Financial Accounts Fair value adopted for all IFRS accounts

Answer 23

VPGA 2 Valuations for Secured Lending Must identify and manage conflicts of interest, or turn down the instruction Previous involvement must be disclosed Reporting procedures include disclose an agreed price for the transaction if there has been one, comment on the suitability of property for mortgage, comment on environmental consideration If a special assumption then comment on any material difference between the reported value with and without that special assumption

Answer 24

VPGA 8 Valuation of Real Property Interests Covers inspections and investigations particular focus on sustainability and ESG e.g. flood risk, alignment with regulations, resilience/carbon emissions

Answer 25

VPGA 10 Matters that may give rise to Material Valuation Uncertainty Clearly draw attention to any issues resulting in material uncertainty Examples could include uncertainty around ground rent proposals

Answer 26

Effective May 2024 Mandatory rotation for valuers - firm must be rotated every 10 years, individual must be rotated every 5 years, minimum 3 years break before valuing again Improves independent nature of valuations More focus on Sustainability - valuers should consider impact on value

Answer 27

UK VPS 3 Regulated Purpose Valuations (Valuation Monitoring) These are valuations relied upon by third parties who have not commissioned the valuation and they are subject to valuation monitoring e.g. financial reporting, stock exchange listings, takeovers and mergers not secured lending RICS can inspect must declare how long you have represented the client declare if percentage of total fee income from the client is over/under 5% If a firm acts for the purchase of the property, they cannot value the property for regulated purposes within 12 months of the purchase

Answer 28

most recent case +/- 15% previously +/-10% depends on complexity of valuation case

Answer 29

Zero up to £150,000 2% between £150,001 and £250,000 5% over £250,000

Answer 30

Zero up to £250,000 5% between £250,001 and £925,000 10% between £925,000 and £1,500,000 12% over £1,500,000

Answer 31

The Red Book defines a special purchaser as 'A particular buyer for whom a particular asset has special value because of advantaged arising from its ownership that would not be available to other buyer in a market' Special Value reflects this value E.g. location next to a property the business operates in or marriage value/development potential

Answer 32

The cost of reinstating the building without a profit use BCIS for build costs GIA for commercial properties Add VAT, demolitions costs, planning fees, professional fees, building regulation fees Not a written opinion of value - a guide

Answer 33

Stamp duty at the prevailing rate Agent fees - typically 1% Solicitor fees - typically 0.5%

Answer 34

Weighted Average Unexpired Lease Term Multiply the annual rent for each lease by the years remaining on the lease term Sum these weighted terms divide by the sum of annual rents to get the WAULT Do to expiry & breaks

Answer 35

Valuation technique to analyse retail rents 6.1m zones, halve back each time basements and first floors typically treat as A/10 depending on comparables quantum adjustments can be agreed for size return frontage typically 10% uplift on the portion that benefits from return frontage Always check with local agents and prior agreements if possible e.g. previous rent reviews

Answer 36

Straight-line basis until expiry or break Monthly rent * months received for / total months of term take 3-month fitting out period from the rent-free before calculating if required

Answer 37

Market Rent assumes vacant possession and is the amount of rent anticipated for the use of the property with reference to comparable evidence in the area ERV takes into account the existing lease e.g. onerous terms. A rent review might only go to ERV which would be lower than MR

Answer 38

to become a RICS Registered Valuer RICS introduced monitoring scheme for all registered valuers to improve standards to meet RICS' requirements to self-regulate effectively To protect and raise the status of the valuation profession Mandatory for Red Book Global valuations Monitored through firm's submission of annual return

Answer 39

50% if single tenant zero if multi-let In line with comparable evidence

Answer 40

Draw clients attention to them Photo evidence and detailed description Advise a structural survey should take place Don't comment on area outside of ones expertise Seek and obtain cost input to remediate and include within the report

Answer 41

Acting for the buyer and seller within the same transaction Acting for two or more parties competing for an opportunity Valuing for a lender where advice is also being provided to the borrower Valuing a property that was purchased under advice from your firm

Answer 42

The ratio of rent to interest payments Banks want 100-150% ICR, depending on risk associated with loan

Answer 43

Typically 60%, although due to market uncertainties can be 40-60% in recent years. Depends on risk associated with loan, asset class etc.

Answer 44

BoE base rate cut to 5% in August. Many banks operate around 2% above the base rate but can be higher

Answer 45

Some banks require rating of property's location and construction from GOOD to WEAK is the location/construction suitable for the property's use? Is the location/construction desirable for potential tenants? Are there any risks associated with the property's location/construction? I would consider the local market e.g. retail the town, the high street, the position on the high street Or industrial connections to major road networks, site cover ration, access etc Office - transport connections or alternatively parking, obsolescence, the local market etc

Answer 46

The client The public Other stakeholders