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Valuation submission Flashcards

1
Q

What type of construction were the Bay Cliff’s properties?

A

Terraced houses with brick elevations with tiled pitched roofs;

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2
Q

What due diligence checks would you carry out as part of VPS2? What did you client provide?

A
  • As part of VPS2 I was required to verify that the information provided was professionally adequate and ensure to record any restrictions/limitation on the inspection.
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3
Q

Re the Val in Billericay, how did you come up with the WAULT? What is the WAULT used for?

A
  • I calculated the passing rent until the next lease event for each unit and then divided the total sum by one year total passing rent/
  • The WAULT is a useful indicator to compare different multi-let properties and understand the value of contracted rents
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4
Q

What are the key updates to the latest Red Book Global?

A
  • Term of Reference must be clear and unambiguous, in that valuation are either Red Book complaint or not (quasi- or non-Red Book are term not to be used)

Sustainability:
- VPS2 and 3 puts greater emphasis on Sust and ESG factors
- VPGA2: ESG and Sust factors should form an integral part of the valuation approach; commentary may be also be required on the maintainability of income, and on future cost liabilities to meet changing regulations and investors expectations
- The inclusion of direct and indirect valuation relevance and physical and transition risks under VPGA8

  • Definition and scope of valuations contained within the IVS
  • VPGA1 (val for finacial reportg) ref to IFRS 13 and IFRS 16
  • A non-exhaustive list of properties that require the use of the profit method, such as student housing, self-storage etc
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5
Q

Why is it important to value using Red Book standards?

A

In order to ensure that I am providing accurate, reliable valuations that are in line with the industry standards and best practice

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6
Q

What would a low or high WAULT mean generally?

A
  • A high WAULT indicates a lower risk as it suggest a longer period of guaranteed rental income
  • A low WAULT indicates a higher risk as suggest that there are greater chance of leases expiring and properties left vacant
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7
Q

Name some of the statutory Duediligence that are required to be undertaken for a valuation?

A
  • Asbestos register
  • Equality Act Compliance
  • Business rates/Council Tax
    -Contamination
    -Environmental issue
    -Randon Gas
    -Flood risk
    -EPC rating
    -Fire Safety
    -highways
    -legal title
    -tenure
    -land registry
    -planning history
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8
Q

What is the difference between Net Effective Rents and Headline rents? How can NER be determined?

A
  • A headline rent(or face rent) is the quoted rent by landlords which does not include any incentives or discounts, such as rent free periods, fit-out periods, service charge waivers, that the landlord may offer to attract tenants
  • NER is actual rent paid by the tenant over the term of the lease, after deducting an incentives or discounts that the landlord may have provided.
    NER can be determined with a Straight line method, Straight line method assuming time value of cash flow using a yield(n will be the no. of years and i the inflation) or by using a DCF.
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9
Q

What’s an incentive?

A

Any form of inducement or concession made by either party:
- Rent free periods
-Stepped rents
-Capital contributions
-Premiums

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10
Q

Explain more about the MEES standards? and what are the new rules?

A

The general rule under MEES reg 2015 (introduced by Energy Act 2011) is that new leases of commercial and domestic properties from Apr 2018(include lease renewal/extension) require to have a min EPC rating of E. From April 2023 all existing leases will also have to ensure that their EPC rating is E or above (same rule for resi from Apr 2020).

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11
Q

What is an EPC rating and what is used for?

A

EPC stands for Energy Performance Certificate, which assess the energy efficiency of a building. It’s an additional factor for comparing buildings.

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12
Q

When is EPC required? and how long does it last?

A

-All commercial building over 50sq.m, when newly built, sold, or let for a term of more than 6 months, or hen refurbished and heating/cooling is altered
- Sale, lease or refurbishment of resi building
-Sub-letting or assignment of lease
- It last for 10 years

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13
Q

Which type of buildings do not need an EPC?

A
  • listed building
  • places of worship
    -building with no heating/cooling
    -religious building
    -temporary building
    -building due to be demolished/redeveloped
    -resi building not occupied more than 4 months a year
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14
Q

What is DEC?

A

Stands for Display Energy Certificate; it reflects building’s perfomance in operation; and is required for all public buildings over 250sq.m.

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15
Q

Who polices MEES and what are the fines?

A

Local Authorities.
Fines for commercial properties:
- Based on a percentage of Rateable Value but will be subject to a minimum fine of £5,000 up to a max of £150,000 (depending on breach under/over 3 months)
Fine for residential:
- between £2k and £4k (depending on breach under/over 3 months)

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16
Q

What are the potential changes to MEES (non-domestic)?

A

Government consultation suggests rise of minimum level to C by 2027 and B by 2030

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17
Q

What does the Profit method consist and for what type of property do use it for?

A

The profit method is used for trading related properties, that are designed for a specific use and where its the value reflects in the trading potential i.e. Hotels, restaurants, night clubs.
- The valuer needs to first establish the Fair Maintainable Operating Profit (FMOP= Turnover - Business costs) or EBITDA(Earnings Before Interest Taxes Depreciation and Amortization) achieved by a Reasonable Efficient Operator (REO).
- Then capitalize the FMOP by the appropriate All Risk Yield (rate of return).
- It’s always good practice to check result with comparable sales if possible

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18
Q

What is DRC and what it’s used for? and how does the DRC work? what types of obsolescence exist?

A

It’s the method used for specialized buildings, where there’s limited or unavailable market evidence i.e. schools, fire stations. This method is used for accounting and rating valuations.
Methodology:
- Determine the existing use of the land
- (current costs of replacing the building + fees) - (deprecated and obsolescence/deterioration)
- Physical obsolescence - wear and tear of building
- Functional obsolescence - where design of the asset no longer fulfils the function of what was originally designed
- Economic obsolescence - life cycle of the building

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19
Q

What are the Valuation approaches under IVS 105?

A
  • Income approach (investment method, residual and profit)
  • Market approach (comparable method)
  • Cost approach (DRC)
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20
Q

What are the steps when undertaking the comparable method?

A
  • search and select the comparables
  • Confirm/verify details and analyse of comparables
  • Assemble comparable in a schedule
  • Adjust the comparable using a hierarchy
  • Analyse the comps to form an opinion
  • Report value and prepare file note
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21
Q

What are the 3 categories in the Comparable Evidence in Real Estate Valuation Guide 2019?

A
  • Cat A: Direct comparable (completed transactions, of similar/identical properties including the property itself, or properties with accurate info details, or properties for which full data is not available the data collated is still useful & asking price)
  • Cat B: general market data provided by public sources or data base (the importance of this will depend on the reliability of the source), historic evidence, demand/supply
    Cat C:evidence from other real estate types, other background data(i.e. interest rates and stock market movements)
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22
Q

What does Years Purchase mean?

A

It’s the number of years required for its income to repay its purchase price. A YP is calculated by dicing 1 over the yield.

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23
Q

What are the risk factored in the choice of yield?

A
  • Prospect of rental and capital growth
  • quality of location and covenant
  • Use of the property
  • Lease terms
  • Obsolence
  • Voids
  • Security of income
  • Liquidity - ease of sale
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24
Q

What is the All Risk Yield?

A

The remunerative rate of interest used in the valuation of fully let property let at market rent reflecting all the prospects and risks attached to the particular investment

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25
Q

What is an internal valuer?

A

Is a valuer that is employed by a company to value their assets. This type of valuation is only for internal use, with no third-paryy reliance

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26
Q

What does the RICS guide on comparable evidence recommend?

A

The guide outlines principle of comparable method and provides advice when dealing with little comparable evidence. Any source of rental data can provide good comparable evidence as long as it is fully validated and appropriately analysed. Also sets out a non-perspective hierarchy of evidence that valuer should use:

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27
Q

What is an external valuer?

A

It’s a valuer that ha no material links with the asset to be valued or the client

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28
Q

What are the THREE steps you should undertake prior to commencing a valuation?

A

1 - Need to check you have the correct level of skills, understanding and knowledge to undertake the work
2 - Need to undertake a CoI to check you are able to act independently on the instruction
3 - Need to draft a ToE and receive written confirmation from the client

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29
Q

Why do you undertake statutory due diligence for valuations?

A

To confirm that there no matters that can materially impact upon the valuation

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30
Q

What are the FIVE main methods of valuation?

A

Comparable method 2. Investment method 3. Profits method 4. Residual method 5. Depreciated replacement cost method

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31
Q

What guidance did the RICS recently release on using comparable evidence?

A

RICS Comparable evidence in real estate valuation, 2019

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32
Q

When would you use the investment method of valuation?

A

Used when there is an income stream to value

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33
Q

How does the conventional investment method work?

A

Consisting in valuing the income stream receivable from a property let. The rental is capitalised at an appropriate yield to produce a capital value.

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34
Q

When would you use a Term and Reversion method? How does it work?

A

It’s used to for valuing under-rented investments:

  • Income flow divided vertically
  • Term= Capitalised until next review/lease expiry
  • Reversion= MR valued into perpetuity at an ARY (deferred by n. of years)
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35
Q

When would you use the Layer / Hardcore method? How does it work?

A
  • Used for over-rented investment
  • Income flow divided horizontally
  • Bottom slice = MR capitalised into perpetuity
  • Top Slice= (Passing rent - MR)*capitalised until lease event
  • Apply higher ARY to top slice to reflect additional risk
  • The sum of the two is the Capital Value
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36
Q

What is a yield? How is calculated and represented?

A
  • It is a measure of investment return, expressed as a percentage of capital invested * Calculated as income divided by price x 100
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37
Q

What is YP? How would you calculate Years Purchase?

A

Number of years required for the income to repay the purchase price; Divide 100 by the yield

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38
Q

What is a True yield?

A

Assumed rent is paid in advance (traditional valuation practice assumes rent is paid in arrears)

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39
Q

What is a Nominal yield?

A

Initial yield assuming rent is paid in arrears

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40
Q

What is a Gross yield?

A

Yield based on the net purchase price (i.e. not adjusted for purchasers’ costs)

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41
Q

What is a Net yield?

A

Yield based on the gross purchase price (i.e adjusted for purchasers’ costs)

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42
Q

What is an Equivalent yield?

A

Average time weighted yield reversionary property is valued using an initial and reversionary yield

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43
Q

What is an Initial yield?

A

Simple income yield for current income and current price

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44
Q

What is a Reversionary yield?

A

Market Rent divided by current price on an investment that is under rented

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45
Q

What is a Running yield?

A

Yield at one moment in time

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46
Q

When did the new RICS Valuation - Global Standards become effective as of?

A

31st Jan 2022

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47
Q

What are the SIX parts of the RICS Valuation - Global Standards (“Red Book Global”)?

A

Introduction 2. Glossary 3. Professional Standards (PS) 4. Valuation technical and performance standards (VPS) 5. Valuation applications (VPGA) 6. The International Valuation Standard (IVS)

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48
Q

What does PS1 of the Red Book Global cover?

A

PS 1 - Compliance with standards and practice statements where a written valuation is provided.

Looks at application - when a valuation needs to be Red Book Global compliant.

Details the 5 exemptions.

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49
Q

What are the FIVE exceptions, where a valuation does not have to be Red Book Global compliant?

A

Advice is provided in preparation for, or during the course of negotiations or litigation 2. Statutory function except for the provision of a valuation for inclusion in a statutory return to a tax authority 3. Internal purposes, without liability and not communicated to any third party 4. Agency and brokerage work in anticipation of receiving instructions to dispose of or acquire and asset (except where a purchase port is required which includes a valuation) 5. Expert witness

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50
Q

What does PS2 of the Global Red Book cover?

A

Ethics, competency, objectivity and disclosures

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51
Q

What does PS2 of the Global Red Book state with regards to Professional and Ethical Standards?

A

All members undertaking valuations must act in accordance with the RICS RoC

52
Q

What does PS2 of the Global Red Book state with regards to independence, objectivity and the identification and management of conflicts of interest?

A
  • Valuers and firms must act objectively and independently * Should apply “professional skepticism” when reviewing information and data before relying on it * Identify and manage conflicts of interest
53
Q

IVS - What are general standards?

A

The “general standards” set requirements for all valuations, of any asset and any purpose.

54
Q

Can you name some of the IVS general standards?

A
  • IVS 104 - Bases of Value
  • IVS 105 - Valuation Approaches and Methods
55
Q

What is the Red Book?

A

The Red Book is a framework containing mandatory rules, best practice guidance and related commentary for all members undertaking valuation work across the globe.

56
Q

VPS 3 - can you give preliminary (draft) valuation advice?

A

Yes, however it must be:

  • marked as a draft, subject to completion of the final report
  • marked for internal purposes only
  • stated that it cannot be relied upon and can’t be published.
57
Q

VPS 4 - Define a special assumption?

A

A special assumption is a supposition that differs from reality but is taken to be true and accepted as fact, even though it is not true.

e.g. special assumption of a 90 day sale period.

A special assumption must be agreed with a client in writing at the commencement of an instruction.

58
Q

VPS 2 - why must valuers inspect?

A

To verify the physical aspect of the property and that the necessary information being relied upon for a valuation to ensure the information is professionally adequate for its purpose.

59
Q

VPS 2 - are desktop reports Red Book compliant?

A

Yes, however the valuer should consider if the restriction is reasonable and confirm this in the limitation sec of ToE

60
Q

VPS 2 - can you conduct a re-valuation of a property and not inspect?

A

Yes you can, only if you’re satisfied that there have been no material changes to the property or the nature of its location since the previous report.
Must confirm this in the terms of engagement.

61
Q

What is VPS 3 of the Red Book?

A

This is relating to Valuation Reports and covers what should be included within a report.

i.e. what is included within VPS 1 - Terms of Engagement, date of report, amount of the valuation

62
Q

VPS 3 - can you discuss the valuation report with the client prior to issuing?

A

Yes you can, however, you must not be influenced by the client in any way.

Any information given by the client in the discussion, must be stated within the report

63
Q

VPS 4 - Define an assumption?

A

It’s a supposition regarding the property that is taken to be true, and therefore reasonable for the valuer to accept without the need for specific investigation.

e.g. on the assumption that there is no contamination.

64
Q

VPS 4 - Define Market Value?

A

The estimated amount for which an asset or liability 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 had each acted knowledgeably, prudently and without compulsion.
65
Q

VPS 4 - Define Market Rent?

A

The estimated amount for which an interest in real property should be leased:

  • on the valuation date
  • between a willing lessor and a willing lessee
  • on appropriate lease terms
  • in an arm’s length transaction,
  • after proper marketing and
  • where the parties had each acted knowledgeably, prudently and without compulsion.
66
Q

VPS 4 - Define Fair Value?

A

The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

67
Q

VPS 4 - Define Investment Value?

A

The value of an asset to a particular owner, or prospective owner for individual investment or operational objectives

68
Q

When undertaking a loan security valuation, what parts of the Red Book would you have view on?

A

VPGA 2 and VPGA 10 of UK National Supplement.

69
Q

Under VPGA 2, what must you include in your ToE for LSV?

A

Disclose any previous involvement within the last 24 months in ToE.

Disclose any anticipated future involvement too.

70
Q

What are examples of previous/future involvement under VPGA 2?

A

Long-standing professional relationship
Introducing transaction for which a fee is payable to the valuer or firm
Has a financial interest in the asset or in the borrower
Is acting for the owner of the property or asset in a related transaction.
Is acting (or has acted) for the borrower on the purchase of the property or asset

71
Q

Can you value a property that your agency team has sold?

A

Under RICS Professional Statement: Conflicts of Interest - UK Commercial Property Market Investment Agency (2017).

You can be both the agent for the seller and the valuer for the lender/purchaser - however, must be disclosed and agreed in writing.

72
Q

What do you do if the borrower won’t disclose the lender? and why?

A

If the party does not know, or is unwilling to disclose, the identity of the intended lender, it will need to be stated in the ToE that the valuation may not be acceptable to a lender.

This may be because some lenders do not accept that a valuation procured by
a borrower or an agent is sufficiently independent, or because the particular lender has specific reporting requirements

73
Q

What is mark to model valuation approach?

A

Assets that must be “Marked-to-model” either don’t have a regular market that provides accurate pricing, or have valuations that rely on a complex set of reference variables and timeframes.

This creates a situation in which guesswork and assumptions must be used to assign value to an asset, which makes the asset riskier.

74
Q

What is mark to market valuation approach?

A

“Mark-to-market” is a way of valuing assets based on how much they could sell for under current market conditions

75
Q

Examples of common special assumptions in LSV?

A
  • planning consent has been granted
  • practical completion
76
Q

What specific elements would you look at for environmental factors?

A

Flood risk
EPC
Current and Historic use
Contamination
Invasive species

77
Q

When is Fair Value required as a basis of value?

A

When the client has adopted IFRS for their accounts

78
Q

When may Investment Value be adopted?

A

When the property is income generating or when I want to reflect the value of an asset against the client’s own investment criteria

79
Q

Is there a New Red Book going to be published soon? and what are predicted changes?

A

Yes, the RICS are looking to publish a new UK National Supplement soon.

the main changes will relate to:

  • regulated purpose of valuations - UK VPS3, in light of the Review of Real Estate Investment Valuation report
  • sections relating to financial reporting, public sector valuations and residential valuations
80
Q

What is the Review of Real Estate Investment Valuations?

A

It’s a report commissioned by the SRB and prepared by Peter Pereira Gray to address the process of how to carry out Investment Valuations in view of of the rapidly changing markets;

The key recommendations are:

  • the creation of a Valuation Commission Officer role within regulated valuation providers
  • Creation of an independently-led valuation regulatory panel
  • Adoption of DCF as principal model for preparing property investment valuations
  • Rotation process for valuers
81
Q

What is a DCF?

A

It’s a tool that can be used for valuing investment assets, and which involves estimating future cashflows that the asset is expected to generate and then discounting those cashflows back to their present value using a discount rate.

82
Q

Why do you use a discount rate in DCFs?

A

A DCF analysis takes into consideration time value of money, which means that a pound received in the future is worth less than a dollar received today because of inflation

83
Q

What is the UK Red Book National Supplement?

A

It’s a supplement guide to the Red Book Global, which provides 18 valuation practice guidance ( it is not a substitute);

84
Q

Give two sections within the RED UK supplement?

A
  • UK VPGA 1 for financial reporting
  • UK VPGA 10 for commercial secured lending purposes
  • UK VPGA 16 Valuation for compulsory purchase and statutory compensation
85
Q

What are the pros and cons between a DCF and conventional method of valuation?

A

Pros:
- DCF includes a detail projection of future costs, growth and therefore more is a more objective method for valuing;
- Conventional method, it’s a more simple and straight forward valuations method that doesn’t need detailed data inputs or assumptions

Cons:
- DCF needs large amount of data and assumptions
- CM requires large amount of comparables and a slightly more subjective assessment

86
Q

What is the difference between DCF and conventional methods?

A
  • A DCF is a detailed analysis of future cashflows and explicit assumptions
  • A conventional method, it’s a more simplistic conversion of future cashflow using implicit assumption contained in the yield chosen
87
Q

VPS 1 - What is included with your standard Terms of Engagement?

A

In accordance with VPS 1:

ID & Status of Valuer
ID of Client
ID of other users
The property
Currency
Purpose of valuation
Basis of Valuation
Valuation date
Investigation extent any limitation
Nature of other information to be rely upon
All assumption and special assumptions
Format of the report
Restrictions on use, distrubuition and publication
Confirmation that it will be undertaken in accordance with IVS.
Fee basis
Firm registration and CHP
Statement saying that the valuation may be subject to monitoring from RICS
PII liability Caps

88
Q

What is an external valuer?

A

A valuer who, together with any associates, has no material links with the client, an agent acting on behalf of the client or the subject of the assignment.

89
Q

What is the industry regarded profit test? and why is 3 times?

A
  • The profit test is regarded as the the Net Profit being at least 3 time the annual rent for 3 consecutive years or the net asset value to be 5 times the rent for 3 consecutive years.
  • this is because it takes into account rent rates and staff remuneration
90
Q

What is hope value?

A

The element of value of land over and above the existing use value which reflects the prospect of potential development/alternative use.

Hope value generally lies between the EUV and its Development Value/Alternative Use and can increase as the likelihood of a new alternative use becomes more certain.

91
Q

What is a rent review?

A

Rent reviews allow the periodical adjustment of commercial rents to the market level current at the date of review. They take place at whatever intervals are agreed in the rent review clauses in the commercial lease.

Rent reviews typically occur every three to five years, which is a frequency reflecting the general shortening of lease lengths in recent times.

92
Q

What would you need to do if you you note an issue in the property that may affect value but you are unable to assess?

A

I would recommend the client to make further enquiries or obtain further specialist advice in respect of that matter, and wait to issue my report until that matter has been clarified.

93
Q

What is the difference between FRI and IRI?

A
  • Full Repairing Insurance: the tenant is responsible for all repairs and maintance of the property including the structure and exterior parts
  • Internal Repairing and Insuring Lease: the tenant is responsible for the internal parts only
94
Q

In multi-occupied buildings which are let on FRI terms, how does the landlord recover the cost of the exterior?

A
  • Through a service charge
95
Q

How do sustainability factors may impact valuations?

A
  • Operational efficiency: properties that are not energy efficient are generally more expensive to run therefore receive less demand from users and reduce value
  • MEES compliance: property with high EPC rating that fall below the acceptable range cannot be rented so will incur in voids and are subject to large capital expenditure sums to bring them up to standards and therefore negatively impact on value
96
Q

What are the differences between quantitative and qualitative adjustments?

A
  • A quantitative adjustment consist in quantifying in money terms the adjustment to apply on certain comparable and apply that allowance
    e.g. if have two comparable properties that in different state of repair, an adjustment could be made to allow for the costs of renovating the property in poorer condition up to the standard of the better building.
  • A qualitative adjustment are allowances based more on professional judgement and knowledge of the local market where there is no direct evidence to quantify the degree of adjustment required.

E.g. view of the property, footfall exposure, tenant covenants

97
Q

What are 3 takeaways form the Comparable Evidence in Real Estate Val GN 2019?

A
  • The importance of verifying evidence
  • The hierarchy of evidence
  • Making adjustments and be transparent about the adjustment made
  • recording clearly the comparable evidence and kept on file.
98
Q

Describe the industrial property in Witham:

A
  • End of terrace, light industrial unit
  • Portal frame construction with insulated cladding elevation and roof coverings
  • GIA 11 sqft, 7.5 mt eaves height going
  • Front gated yard including parking
  • SIte coverga 45%
  • Presence of mezzanine but excluded it as without permanent access
  • 1 Loading door with eletric shutter (3.5h x 3.8w)
  • EPC rating D
  • Good accessibility to A12
99
Q

Witham example, how did you structure the investement method?

A
  • I capitalised the MR for the appropriate yield, but defferred that by 9 months to incorporate a void (9 months) and rent free period (3months) at the start
100
Q

Witham example, what other element did you measure in addition to the GIA?

A
  • Eaves height (lowest and highest point)
  • Loading area
  • Site coverage
  • Loading doors
  • Site area
101
Q

How would you value a property that has an EPC falling outside MEES regulations?

A

I would either recommend the client:
- to obtain a cost estimate for bringing the EPC rate of the building up to compliant standards and reflect the impact of those costs in the valuation
- or if there are sufficient comparables of similar property with low level energy rating, I will adopt a similar rate

102
Q

How does a low EPC rating affect the lenders ability/perspective?

A

A property with low EPC rating may reflect a risk with regards to the maintainability of the income over the life of the loan; for example:

  • a low energy efficiency building my have high operating costs and therefore affect the profitability of a tenant and therefore its ability to pay the rent to the borrower
  • A low energy rating that is due to fall outside the MEES, can have a short term income generating potential and therefore not guarantee it’s ability to repay the loan through its income
103
Q

what is zoning? what is the benefit of zoning?

A
  • It’s a technique used for comparing retail properties
  • it consist in splitting a retail areas into zones of generally 6.1mt deep.
  • Zone A is the area closer to the shop frontage and with a higher value, and the zones behid that are valued using a halving back principle
  • Normally retail shops are split into 3 areas, A, B and C plus remainder
  • remainder will have normally a 1/10 value of zone A
  • It allows a valuer to compare any retail shape property as it is assessed on a consistent approach
104
Q

What is a sensitivity analysis? and what is t used for?

A

A sensitivity analysis allows a valuer to test the the profitability of a scheme by changing key inputs of an appraisal, such as GDV, yield, build costs, finance rate or phasing.

It’s used to identify the level of risks and uncertainty associated with the project and allow developers make informed decisions about the level of investment

105
Q

What is WAULT? What is this ration mainly driven by and what is its purpose?

A

Weighted Average Unexpired Lease Term

  • WAULT is calculated by multiplying the remaining term of each lease by its rental value
  • adding all lease values figures together
  • and then diving it by the total annual rent
  • This calculation takes into account that longer leases provide greater income security than sorter leases, and thus have a greater impact on the overall value of the building/potfolio
  • WAULT is a useful metric for property investors to assess the income profile and for comparing against other multi-let properties
106
Q

What is the difference between a open market letting comp and a comp arising from rent review?

A
  • An OML would normally have more wait as this type of value is being determined openly between two parties without any special conditions or restrictions;
  • the rent review is a value determined by taking into account certain terms and restriction contained in an existing lease
107
Q

Why would a SWOT analysis be useful in valuation?

A

A SWOT analysis can help identify the internal and external factors that affect value of a property, such as tenants covenant, market conditions, conditions etc

108
Q

What was your reasoned advice for the Billericay valuation?

A
  • I advised that the Investment method would be the most appropriate method for valuing the property
  • I confirmed the suitability of property for lending purposes, as the asset offered good a marketability profile
  • I confirmed that there were no physical, environmental matter that would have a significant impact on the value
  • A provided a SWOT analysis that identified an opportunity to re-gear the lease and increase their value
109
Q

What was your reasoned advice for the West-cliff Bay valuation?

A
  • I advised that the Comparable method would be the most appropriate way of valuing the property
  • I confirmed the suitability of property for lending purposes, as there was a general strong demand for that type of property with good energy efficiency
  • Under VPS2 and VGA8, I confirmed that there were no environmental and physical matters that could have a material impact the property value
110
Q

what is the margin of error for valuations? What is the leading case?

A

The acceptable margin of error varies depending on the type of asset to be valued.
For example, the margin of error for a standard residential property with a good level of evidence is +/- 5% ; for a one-off commercial property can go to +/- 10%, but courts have accepted up to 15%;

  • Case law: Singer & Friedlander vs JD Wood (1977)
111
Q

Under VPGA2, what additional recommendations a valuer should give if the property is held as investment?

A
  • summary of occupation leases
  • commentary on passing rent vs market rent
  • Comment on the market’s view with respect to the quality and strength of the tenants
  • Comment on the maintainability of income over the life of the loan - Consideration of maintainability of income in the context of ESG and sustainability
112
Q

List the MEES exemptions?

A
  • If a building does not need an EPC
  • Where the tenancy is less than 6 months with no security of tenure
  • Where tenancy is for more than 99 years
  • When the costs of implementing the improvements do not meet the 7 year Payback test (require 3 quotes to proof this ground)
  • When the improvements would devalue the property by more than 5%
113
Q

What types of eaves can you measure?

A
  • Clear Internal eaves height: measurement from internal floor to the under side of the haunch
  • Internal eaves height: measurement from internal floor to the under side of the roof
  • External eaves height: measurement from external floor to the lowest point of the roof
114
Q

What difference would allow when valuing between new built flats and second hand flats?

A

It depends but normally between 10-20%, due to the facts that new built flats are normally provided with better energy efficiency systems, modern fittings and there is absence of wear and tear. Also, new built flats would a NHBC warranties that cover against any defects.

115
Q

What is Internal Rate of Return? What represents?

A

It’s a financial metric that measures the profitability of the scheme and potential returns.
It is the interest rate at which the net present value of all cashflows is equal to zero.
That means that the higher the IRR the more profitable a scheme is.

116
Q

What are the RICS documents relevant to valuation & ESG?

A
  • Sustainability and ESG in Commercial Property Valuation and Strategic Advice 2021.
117
Q

What are the RICS documents relevant to valuation & Asbestos?

A

GN Asbestos: 2021

118
Q

What are the RICS documents relevant to valuation & Multi-storey residential buildings?

A

GN Valuation of Properties in Multi-storey, Multi-occupancy Resi buildings with Cladding 2021

119
Q

Describe the retail and office situation in Billericay and rents?

A
  • Regarding the retail parts, the high street is traditional linear high street with no major shopping centres but populated by a mix of private and national retailers (Cost and WH smith). The situation at the time showed high occupancy levels despite the online shopping market causing a general disruption in this sector.
  • The office market, is small in Billericay, however, the limited stock available in Billericay keeps the demand for city centre office space relatively strong;
  • Average office rent: £18 psf (6-10 year lease)
  • Average retail rent: £50 psf ITZA (3-5 year leases)
  • Average Office yield: 6-7%
  • Average retail yield: 7-9%
120
Q

In billericay, what was your valuation methodology?

A
  • In respect of the retail unit I have assumed:
    o On the reversion of current lease an average of 6 months void period + 6 months’ rent free
    o Applied an average 7% Y on term due to the security of income and rental growth
    o and 8.5% on reversion due to the uncertainty of covenant strength, risk in re-letting the property and dilapidation issues
121
Q

In Billericay, how did you check dilapidation aspects with current tenants?

A
  • I checked the lease terms and established that the repairing liabilities were tenant’s responsibilities so assumed that the tenant would bring the property back to its conditions
122
Q

In Billericay, how did you assess the covenant strength of the current tenants?

A
  • I was unable to assess some of them on D&B so I looked at their accounts on Company House and verified that their net profit was proportionate to the rent obligation and also verified their history.
123
Q

In Billericay, What did the SWOT analysis showed?

A
  • S – High occupancy levels, good location
  • W – Limited security of income and low WAULT
  • O – Re-gearing of leases
  • T – Online shopping and WFH
124
Q

In Billericay, what was your reasoned advice?

A

As it was a LSV, I confirmed that the property was suitable for loan security based on
- That no circumstances regarding environmental and non-environmental matters had material impact on value
- That the market conditions in that particular area remained relatively strong for both type of assets
- Analysed the tenancy arrangements which confirmed the opportunities of re-gearing the leases

125
Q

In West-cliff Bay, what were the unit average size?

A
  • Average of 175 sqm each
126
Q

In West-cliff, What other due diligence have you considered?

A
  • Flood risk was very low being on a hill
  • Tenure FH was confirmed
  • Physical site boundaries complied with the title plans
  • Plans of internal layout was also compliant
  • No contamination or other environmental matter that could impact the value
  • From our research all planning conditions were fully discharged so we assumed that the houses all benefitted from full planning permission and Build Regulation consent
127
Q

In West-cliff, How did you confirm that the subject units were suited for the intended purpose of loan security?

A
  • From the due diligence undertaken, I verified that there were no environmental circumstances that could severely affect the value of the property
  • From a market analysis, I established that there was strong demand for energy efficient residential properties
  • All of the EPC ratings were within the MEES standards

Fed apc (20 decks)

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