Valuation Level 2 - Industrial Bangor

Question 1

Describe the property?

Answer 1

steel framed modern single storey industrial unit smooth painted rendered finish with a flat roof

currently being used for auto repairs

Question 2

Talk me through how you valued this property?

Answer 2

I was instructed to value an industrial unit in Bangor for loan security purposes

I checked that I was competent to undertake the valuation and carried out a conflict of interest check

I issued terms of engagement and proceeded once I had signed terms

I arranged to inspect the property, and took check measurements of the property from floor plans the client provided

I carried out research of comparable evidence and established that the property was over rented

I used the investment method of valuation using hardcore and top slice method of valuation.

I drafted the valuation report before finalising and sending to the client.

Question 3

What did your yield profile look like?

Answer 3

Net initial yield was higher because the property was over rented

Reversionary yield was lower and in line with comparable rack rented evidence

Equivalent yield sat in between

Question 4

What yield did you apply to the top slice?

Answer 4

I applied a higher yield to the top slice to reject the risk of the over rent

Question 5

What does the top slice reflect?

Answer 5

the difference between the passing rent and the market rent.

Question 6

How did you determine that the property was over rented?

Answer 6

speaking to local agents
looking at comparable evidence

Question 7

Is there less risk to the top slice as it was let to a national occupier?

Answer 7

Yes, if it was let to a weak covenant strength it would be more likely that the tenant could default on payments

however it is still more risky than the core

Question 8

What would you consider when inspecting an industrial unit?

Answer 8

Site to property ratio - 60:40
Floor loading - min 30 killer neutons
Loading doors
Eaves height - min 8m

Question 9

What due diligence did you undertake for the property?

Answer 9

Checked use class (B2)
checked lease details
had sight of the EPC raiting

Question 10

Where is Bangor?

Answer 10

North West Wales

Question 11

How do you do a hard core and top slice valuation?

Answer 11

1. income flow divided horizontally
2. Bottom slice is market rent
3. Top slice is over rent until next lease event
4. higher yield applied to the top slice

Question 12

What yield did you apply to the hardcore?

Answer 12

7%

Question 13

What yield did you apply to the top slice?

Answer 13

7.5%

Question 14

What was the current rent?

Answer 14

£57,000 p.a

Question 15

What was the rent psf?

Answer 15

current rent passing was £11.50 psf

Question 16

what was the unexpired term?

Answer 16

3 years unexpired.

Question 17

How big was the unit?

Answer 17

5,000 sq ft

Question 18

How many car park spaces were there?

Answer 18

8 spaces

Question 19

What was the market rent psf?

Answer 19

7psf

Question 20

You put a 0.5% increase on the yield on the top slice, what did you consider when looking at the yield?

Answer 20

• how much it was over rented by
• the length of the term

Question 21

How might you account for a mezzanine in industrial space?

Answer 21

if it was part of the fit out I could not rentlise for 21 years

Question 22

How would you deal with first floor offices in an industrial unit?

Answer 22

If they were fitted out good quality offices (not mezzanine) I would keep the same rate

Question 23

How would you measure a mezzanine area?

Answer 23

if it was tenant fit out I would include in GIA but state separately

Question 24

How would you work out whether you could rentalise the mezzanine?

Answer 24

would have regard to the deed of variation in the lease.

Question 25

How would you measure a ground and first floor resturant?

Answer 25

measure GIA - deduct staircases

Question 26

What are prime industrial yield?

Answer 26

within m25 4.25% - 4.50%
prime outside greater London - 5.50% - 6%