Valuation & Loan Security examples Flashcards
What was the specification for the unit you valued in Wellingborough?
- Steel portal frame and pitched roof
- Part block part metal clad evelation
- 1980’s construction
- 73,000 sq ft unit
- 9.45m eaves
- 2 level access and 2 dock level doors
What valuation considerations did you have for the Wellingborough unit?
- Specification was older and inferior due to the lack of loading door for its use - discounted MR
- WAULT of sub 3.5 years - greater risk
- Reversionary by 15% - consider EY
- Secondary location
What was the methodology of the valuation for the Wellingborough unit?
- CIT
- Due diligence
- Inspect
- Collate evidence
- Analyse
- I used the comparable method of valuation to determine the market rent and cap rates. I compared the subject against recent transactions. Due to the unit having older specification and lack of loading doors I discounted from the more modern unit rents in the area accordingly.
- I used the investment, term and reversion method to calculate the Market Value. I calculated this using the Argus software.
What issues with construction would you expect with the Wellingborough site?
Asbestos and cut edge corrosion
What was your advice to the client on Wellingborough?
- The building was suitable for loan security due to the security of covenant however I did warn regarding the possible risk regarding the loan repayments if the tenant were to vacate.
On what basis did you value the Bardon unit?
Market value and market rent for secured lending purposes
What was the specification of the Bardon unit?
Steel portal frame - pitched roof
41,000 sq ft
9m eaves
Hot air blowers
LED lights
1 level access and 3 dock level doors
Two storey office block to the front elevation
Secure yard
5% office content
Why did you value on a vacant possession basis?
The unit was owner occupied and meant there is no lease in place and therefore the asset is not income producing
What was the SWOT anaylsis of the Bardon unit?
Strengths – Situated in an established commercial area and lack of availability within the immediate market
Weaknesses – secondary micro location
Opportunities – Sale and leaseback in order to redeploy capital elsewhere
Threats – Economic uncertainty
What was your methodology for valuing the Bardon unit?
CIT
Due diligence
Inspect
Collate evidence
Analyse
I used the comparable method of valuation to determine the market rent. Due to the older specification and inferior location compared to the comparables I applied a discount to the more modern comparable evidence.
I compared VP sales on a Capital Value basis to the subject and noted, the subject was of superior quality and similar secondary location. £95 - £100 per sq ft
I undertook a speculative investment valuation to cross check the comparable valuation. I assumed:
9 month void/50% market rent void costs/L&L costs and legal fees 15%
Comparable method to determine yield of 8.5%
What advice did you give to the lender regarding the Bardon unit?
The property was suitable for loan security and a sale of the asset would appeal to owner occupiers and regional investors/property companies due to the age, size and specification
on what basis did you measure Bardon?
GIA
What was the construction and specification of the Retail Park in Wisbech?
Steel portal frame construction under a pitched roof
Part block part profile metal cladding
Made up of five units
Each unit were fit in accordance with the tenants’ corporate standards
Glazed frontages
Combination of suspended fluorescent strip lighting and LED lighting
We’re the lease renewals done on a headline or net effective basis at Wisbech?
Headline
How did the capitalisation rates differ and why did they differ at Wisbech?
The cap rates used depended on the particular tenant covenant and unexpired term as well as the condition of the unit.
Each unit were different sizes, with one unit being developed more recently than the rest. One tenant had an unstable covenant which I applied a higher yield to, to account for greater risk.
How did you calculate the special assumption at Wisbech?
There was no direct evidence of vacant retail parks so I undertook a speculative investment method approach. I assumed a 6-15 months void, 50% of market rent (void cost), 15% leasing letting and legal fees, 6 months rent free and a higher yield to account for greater risk.
What was the methodology for your Wisbech valuation?
CIT
Due diligence
Inspect
Collate evidence
Analyse
Comparable method of valuation was used to determine the market rent. Due to the lack of evidence within the wider Norfolk area I expanded the search area. The subject was considered to be in a secondary location to the evidence, so I discounted accordingly. Most pertinent evidence were the lease renewals on the park.
Used the comparable method to determine how the cap rate. I applied different yields to each unit depending on covenant strength, condition, and size.
The blended yield profile is then compared against the comparable evidence
To calculate the VP value there is no evidence of vacant retail parks so I undertook an investment method approach – assuming costs and a higher yield.
