Valuation - Level 2 Investment Method

Question 1

You mentioned you undertook a valuation in EK, can you talk me through what this entailed?

Answer 1

• The initial purpose of carrying out the valuation of the unit was to establish the market value of the unit in question as the tenant was looking to buy the unit from my client.
• I first completed a competency check and conflict of interest check to ensure I was able to take on the instruction
• I then went on to agree and issue my terms of engagement with the client before moving on to determine my valuation of the property
• The first part of my valuation was to complete a review the lease, which it stated the unit was let on a 5 year lease, with 2 years remaining. The current passing rent was £15,000 p.a.
• I them arranged arranged the inspection of the unit with the tenant and completed the relevant due diligence?
• Following my inspection and measurement of the unit, I assembled my comparable evidence to establish the market rent
• As the property was under-rented, I used the term and reversion technique to carry out my calculation, which was to:
• Capitalising the term rent until expiry – PR x ARY 6%.
• Reversion – capitalise the market rent valued in perpetuity at the reversionary yield (7%)
• I then finalised my report and issued it to the client noting the Capital Value of the property was £213,000

Question 2

How did you determine the ARY yield?

Answer 2

• Gathered my evidence, which include using comparisons and speaking with local agents.
• I also took into account the tenant covenant strength. As this was strong, I left the yield at the market average for an industrial estate in the Glasgow and surrounding area market.

Question 3

What is the standard spec of an industrial unit?

Answer 3

• Roller shutter
• Yard space
• Car parking – common or exclusive
• Office space
• Eaves height 3-5m
• Dock leveller
  Separate personal entrance

Question 4

How did you measure the unit?

Answer 4

• On a GIA basis, which is length x breadth.
• The measurement also included height of the eaves, and the height of the roller shutter. No yard area was included as this is a shared and part of the common parts of the estate

Question 5

Can you talk me through the steps you undertook to calculate your market rent?

Answer 5

• I firstly gathered my comparable data using other units within Carron Place and the neighbouring estate Colvilles Place.
• I then adjusted the comparable evidence using hierarchy of evidence
• Analysed the data to form my opinion on the market rent