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AM AAPPCC > Valuation Subs > Flashcards

Valuation Subs Flashcards

1
Q

What is the RICS Valuer Registration Scheme?

A

Aims to:

  1. Improve Quality of Valuations
  2. Self-regulate effectively
  3. Raise status of Valuers

Registration mandatory for valuers producing red book compliant reports.

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2
Q

Talk me through your valuation in Shepherds Bush from start to finish?

A
  1. INSTRUCTED BY CLIENT TO VALUE A RETAIL UNIT IN SB FOR LOAN SECURITY PURPOSES.
  2. C, I, T
  3. REQUESTED THE LEASE, FLOOR PLANS, DEEDS OF VARIATIONS ETC AND CHECKED IF ANYTHING TO AFFECT VALUE
  4. INSPECTED PROPERTY AND MEASURED UNIT
  5. RESEARCHED MARKET RENT TO ESTABLISH MR AND FIND AN APPROPRIATE CAP RATE TO ADOPT.
  6. ESTBALISHED IT WAS UNDERRENTED AND USED INVESTMENT METHOD (TERM AND REVERSION) TO WORK OUT MARKET VALUE
  7. PRODUCED A RED BOOK COMPLIANT REPORT
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3
Q

Talk me through your specific valuation in Shepherds Bush

A

MR > PR BREAK YEAR 3

  1. CAPTIALISED THE PASSING RENT UNTIL BREAK AT A CAP RATE FROM MY COMP EVIDENCE (4.5%)
  2. CAPITALISED THE MARKET RENT INTO PERPETUITY AT A SLIGHTLY HIGHER YIELD TO REFLECT RISK (5%)
  3. ALLOWED FOR A VOID PERIOD OF 1 YEAR (6 MONTHS MARKETING VOID, 6 MONTHS RFP)
  4. DEFFERED THE MARKET RENTAL INCOME BY 4 YEARS
  5. PRODUCED MY GROSS VALUE
  6. DEDUCT PURCHASER COSTS TO GET MARKET VALUE - £1.7 M
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4
Q

Did you do a vacant possession valuation as well?

A

YES.

  1. CAPTIALISED THE MARKET RENT INTO PERP AT A HIGHER YIELD THAN I USED BEFORE TO RELFECT RISK (6%)
  2. ASSUMED A 12 MONTH VOID AT THE START OF THE LEASE (6 MONTHS MARKETING, 6 MONTH RENT FREE PERIOD) - ALLOWING FOR RATES AND SERVICE CHARGE
  3. DEFFERED THE INCOME BY 1 YEAR
  4. DEDUCT PURCHASER COSTS
  5. MARKET VALUE - £1.5 M
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5
Q

What does Freehold mean?

A

Landlord owns the property outright

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6
Q

How would your valuation differ if it was leasehold rather than freehold of say 75 years?

A

I have not experienced this but…

  1. I would adjusted the yield slightly upwards to reflect that the tenure is not freehold
  2. I would value the income for only 75 years.
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7
Q

Describe the retail unit in Shepherds Bush

A
  • Ground Floor and Basement
  • Glazed Frontage
  • Solid Brick Construction
  • Good retail pitch
  • 1,000 sq ft (ITZA)
  • 2,100 (Overall)
  • Resi above (sold off)
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8
Q

If the residential above had not been sold off how would you have valued the unit?

A

I would have still calculated the investment value of the shop.

I would have had to conduct additional research into what I thought the residential would have been worth and added this to my investment value.

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9
Q

What is Zoning? How did you zone the property?

A

Zoning = encompassed by the halving back principle.

Essentially, the further you go back from the frontage the less valuable the shop is.

I calculated
Zone A measurement
Zone B: A/2
Zone C: A/4
Remainder: A/8 (Good quality backspace)
Basement: A/40 (Storage space, not suitable for retail sales)

Zone A: £100 psf

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10
Q

How did you measure on an NIA basis?

A

Measured to the internal surface area.

Included:

  • Entrance hall
  • Ramps
  • Non structural walls (tenant fit out)

Excluded:

  • WCS
  • cleaners rooms
  • plant rooms
  • continuous circulation areas
  • structural walls
  • columns
  • Areas under 1.5m

Overall 2,200 s q ft
Zoned 1,000 sq ft

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11
Q

What did your comparable evidence say for yields in Shepherds Bush?

A

Yields ranged from 4.5% - 5%

I adopted 4.5% because:

  • strong covenant
  • very good location
  • high footfall
  • 3 years left until break
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12
Q

You mentioned you conducted a SWOT analysis for your report for shepherds bush, What were the strengths and weaknesses?

A

STRENGTHS:

  • property v good position
  • high footfall - trading well
  • strong covenant
  • after break 8 years left on term (10 years from 2017)

WEAKNESSES:

  • break at year 3
  • user clause for retail only (A1)
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13
Q

What were the opportunities and threats?

SB

A

OPPORTUNITIES:
- Westfield has enhanced the area, more development would be a positive for the area (extension of west field)

THREATS:

  • threats from competition
  • retail declining
  • Brexit
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14
Q

What were your lender action points?

SB

A
  • Suitable for loan security
  • Ensure property is kept in good repair
  • Review whether the break is exercised or not
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15
Q

What does suitable for loan security mean?

A

The value of the property can be secured against the value of the loan

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16
Q

Where is Eltham?

A

South East London - Near Greenwich

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17
Q

Talk me through your valuation from start to finish in Eltham

A
  1. INSTRUCTED BY CLIENT TO VALUE A RETAIL PARADE FOR LOAN SECURITY PURPOSES. BASIS OF VALUE WAS MARKET VALUE.
  2. CIT
  3. REQUESTED LEASES, DEEDS, FLOOR PLANS ETC - CHECKED ANYTHING WHICH MAY AFFECT VALUE - all had short lease terms / breaks
  4. INSPECTED PARADE AND MEASURED
    • retail parade of 8 units
  5. CALCULATED A WAULT TO HELP ESTABLISH AN APPROPRIATE YIELD TO ADOPT AND RESEARCHED MARKET RENTS IN AREA
  6. ESTABLISHED IT WAS RACK-RENTED
  7. USED INVESTMENT METHOD TO CALCULATE MV
  8. PRODUCED A RED BOOK COMPLIANT REPORT.
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18
Q

Talk me through the actual valuation

A
  1. WORKED OUT THE INVESTMENT VALUE FOR EACH INDIVIDUAL UNIT - ESTABLISHED IT WAS RACK RENTED
  2. CAPITALISED THE PASSING RENT UNTIL THE BREAK/ LEASE EXPIRY AT A YIELD FROM COMPS (7.5%).
  3. CAPITALISED MR INTO PERP AT A HIGHER CAP RATE AS THEY WERE LOCAL TENANTS SO RISKIER (8%)
  4. ASSUMED VOID PERIOD OF 12 MONTHS (6 MONTHS LETTING VOID, 6 months RFP) ALLOWING FOR RATES AND SERVICE CHARGE EXPLICITILY
  5. DEFFERED INCOME
  6. GROSS VALUE EACH ONE
  7. ADDED EACH ONE
  8. DEDUCTED PURCHASER COSTS
  9. MARKET VALUE

£1.2 MILL

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19
Q

Did you conduct a vacant possession value?

Talk me through it

A

Yes

  1. CAPITALISED MR INTO PERP AT HIGHER YEILD (8.5%)
  2. DEFFERED INCOME FOR 12 MONTHS (allowing for BR & SC)
  3. DEDUCTED PURCHASER COSTS
  4. MARKET VALUE
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20
Q

What is a WAULT?

A

Weighted Average Unexpired Lease Term

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21
Q

How do you calculate a WAULT?

A

SUM OF THE:

(T rent / Overall Rent) * Time until break or LX

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22
Q

Why did you calculate a WAULT?

A

Used it as a Benchmark to compare the lease length of the parade to shops and other parades to determine an appropriate capitalisation rate.

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23
Q

What did you comparable evidence say?

Eltham Parade

A

MR - £30 psf (ZONE A)

WAULT = 2.6 years until break for subject parade (7.5%)

WAULT of a retail parade = 4 year WAULT and better cov strength, better pitch (YIELD = 6.5%)

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24
Q

How did you measure the Parade? (Eltham)

A

NIA Basis and then Zoned each unit.

A/1
A/2
A/4
Remainder: A/10

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25
Q

Describe the Retail Parade

A
  • 8 retail units
  • brick construction with residential above
  • each had glazed frontages
  • each unit was about 500-600 sq ft each overall
  • each unit about 400 Zone A
  • secondary retail pitch off the main high street
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26
Q

Talk me through your vacant office valuation in Embankment

A
  1. INSTRUCTED BY CLIENT TO VALUE VACANT OFFICE FOR LOAN SECURITY PURPOSES. BASIS OF VALUE = MARKET VALUE
  2. C, I, T of E
  3. INSPECTED AND MEASURED PROPERTY
  4. RESEARCHED MARKET TO GET MR (£70 psf) AND YIELD (4.5%)

USED INVESTMENT VALUE CROSS-CHECKED WITH COMPARABLE METHOD

  1. REPORT
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27
Q

What was included in your Terms of Engagement for the office in Embankment

A

LOAN SECURITY PURPOSES - VPS1

  • Address of property
  • Name of Borrower
  • Name of client
  • Purpose of valuation
  • Basis of valuation
  • Date of Valuation
  • Liability cap
  • Status and Name of Valuer
  • No conflict of interest
  • Assumptions and Special Assumption
  • Restrictions for use
  • Confirmation of Red Book compliance
  • FEE
  • CHP
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28
Q

Describe the office in Embankment

A
  • Virtual freehold (999 years)
  • 3,500 sq ft over 2 floors
  • Reinforced concrete structure
  • Fan COIL - 4 pip aircon
  • Double glazing
  • Raised floors, suspended ceilings
  • good natural light
  • Refurbished to Cat A
  • Good condition
  • Open Plan
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29
Q

Talk me through the actual valuation of the office in embankment

A
  1. CAPTIALISE THE MARKET RENT INTO PERPITUITY AT YIELD FROM COMPS (ADJUSTED FOR VACANCY)
    £70 YIELD: 4.%
  2. DEFER BY 18 MONTHS (6 MONTHS TO LET, RFP OF 12 MONTHS)
  3. ALLOWED EXPLICITY FOR RATES, AND SC, AND RELETTING COSTS
    RATES = £25 PSF
    SC = £10
    RELETTING COSTS = 10% OF first years rent
  4. DEDUCT PURCHASER COSTS
  5. MARKET VALUE
  6. CROSS-CHECKED WITH COMPARABLE METHOD
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30
Q

How did you measure the embankment office?

A

NIA 3,500 sq ft (over 2 floors)

IPMS3 3,570 - as it included columns

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31
Q

Was there must difference between your NIA figure and your IMPS3 figure?

A

About 2% difference

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32
Q

Talk me through your Residential Portfolio?

A
  1. INSTRUCTED BY C TO VALUE RESI PORTFOLIO FOR INTERNAL PURPOSES . BASIS OF VALUE = MV
  2. C, I, T
  3. REQUESTED LEASE/ FLOOR PLANS
  4. INSPECTED AND MEASURED
  5. RESEARCHED COMP EVIDENCE
  6. MARKET VALUE OF EACH ONE USING COMPARABLE METHOD
  7. CALULATED THEM ON AN AGGREGATE BASIS TO GET MARKET VALUE OF PORTFOLIO
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33
Q

Describe the residential portfolio

A

8 residential properties

2 x 1 bed apartments CROYDON
3 x 2 bed apartments BALHAM
3 x 3 bed houses ILFORD

  • All predominantly secondary stock
  • Brick construction
  • Converted mid-terraced houses
  • Pitched rooves
  • All had gardens
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34
Q

How much were the individual properties and the portfolio?

A

£250,000 1 bed in Croydon £950pcm

£570,000 2 bed in Balham £1,700 pcm

£500,000 3 bedroom house in Ilford £1,600 pcm

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35
Q

When you inspected the properties did notice any defects?

A

Slight damp and condensation.

  1. Took photos
  2. Identified the cause of damp
  3. Notified our client
  4. Recommended specialist advice

Did not account for it in our valuation as it was treatable and wouldn’t have had a really big financial impact.

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36
Q

How did you measure the residential properties?

A

Measured on an NSA basis and an IPMS3C basis.

NSA - measured to the internal finished surface (discounting anything below 1.5 meters)

IPMS 3C - Measured area on a room by room basis
- Measure to the INTERNAL DOMINANT
FACE - finished surface area comprising of
more than 50% of floor to ceiling height.

Included but stated separately:

           - attics
           - basements
           - balconies
           - enclosed garages

Excluded:
- patios

In the properties there were no attics, basements etc so the only difference was measuring to the internal dominant face.

Did not alter the areas much at all

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37
Q

Why did you chose IPMS 3C to measure?

A

It is the area of an apartment on a room by room basis not including internal walls and columns.

I thought this was the easiest and most accurate way to measure my specific properties.

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38
Q

What was the Market Value of your Residential portfolio and your yield

A

£ 3.7 MILL

Net Initial Yield: of 2.41% on passing rent

Reversionary Yield: 142,000 / 3.7 mill (6.8% PC)

3.6%

This reflects the very low passing rents

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39
Q

What was included in your residential portfolio report?

A
  1. Summary
  2. Address of Properties
  3. Name of Client
  4. Market Value
  5. Basis of Value
  6. Valuation Date
  7. Methodology - comparable method
  8. Portfolio Basis - properties valued individually
  9. Conflict of Interest
  10. Professional Indemnity
  11. Inspections
  12. Floor Areas
  13. Services
  14. Condition
  15. Environmental Matters
  16. Ground conditions
  17. Japanese Knotweed
  18. Deleterious Materials
  19. Equality Act 2010
  20. EPC
  21. Identification of Valuer.

APPENDIX 1 : Schedule of Values

APPENDIX 2: Individual Reports

APPENDIX 3: Economic and Property Market Review

APPENDIX 4: Definitions and Reservations for Vals

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40
Q

How do you calculate a Net Initial Yield?

A

Rent / Purchase Price x (1+purchaser costs)

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41
Q

What is the difference between Fair Value and Market Value?

A

FIND OUT.

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42
Q

Talk me through the retail zones of Eltham

A

Zone A £30
Zone B - A/2
Zone C - A/4
Remainder A/10

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43
Q

What regulation do you have to follow for loan security valuations?

A

RICS Valuation Red Book Global

VPGA2

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44
Q

What does it for VPGA 2 Loan Security vals?

A
  1. Conflicts of Interest
    • Must declare previous involvement with Borrower
    • Within 2 years
    • Valuer’s responsibility to accept the instruction
    • can be managed by getting another person to
      value it
    • managing CofI specified in Terms of Engagement
  2. Special Assumptions
    • Must be outlined in the ToE prior to commencing
      val
  3. Reports
    • must state the reason for methodology adopted
    • state if its suitable for loan security
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45
Q

How did you assess the covenant strength of your tenant in Shepherds Bush?

A

Credit Safe

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46
Q

How would you value an industrial building?

A
  1. C, I, T
  2. REQUEST LEASE
  3. INSPECT AND MEASURE (Measure GIA)
  4. RESEARCH MARKET TO FORM AN OPINION OF MR AND AN APPROPRIATE CAPITALISATION RATE TO ADOPT
  5. CALCULATED THE VALUE USING INVESTMENT METHOD OF VALUATION
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47
Q

What is the GRADE A Spec of an industrial building?

A
  • STEEL PORTAL FRAME
  • INSULATED PROFILED STEEL CLADDING (walls & roof)
  • 8m clear eaves height
  • Full height loading doors
  • 10% Roof Lights
  • Approx site cover 40%
  • 5-10% office content, WCS
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48
Q

What is site cover?

A

The sq ft of a building compared to site expressed as a percentage

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49
Q

What are eaves?

A

The measurement from the floor to the section whereby the lowest point of the roof meets the top of the wall.

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50
Q

Why is it important to measure the height?

A

The greater your eaves height, the greater the storage

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51
Q

Is zoning always applicable?

A

In most cases yes.

However, in some smaller markets shops may be done on an overall basis.

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52
Q

What was your WAULT?

A

2.6 years until Break

4 years until lease expiry

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53
Q

For your Eltham parade, Did they all have similar lease lengths?

A

Most had about 2/3 years until either expiry or they had a break within that time

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54
Q

If some had shorter leases but some had longer how would you have dealt with that?

A

I would have analysed the units individually and adopted a split yield approach.

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55
Q

Would you still have valued using an initial yield?

A

Yes, I would have just deducted purchaser costs at the end.

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56
Q

What are your typical purchaser costs?

A

SDLT - 5%

Sale Agent and Legal Fee (1% + 0.8%) including VAT

57
Q

You mentioned this is suitable for loan security purposes, why do you believe that?

Eltham parade

A
  • Realistic MV which I felt the loan could be secured against.

Despite the tenants being local tenants and having short lease length, I reflected this in the income voids and the yield in order to ensure that even if the tenants were to leave the property, the relettability and saleability of the parade would be suitable for loan security purposes.

58
Q

What impact is COVID-19 having on valuations?

A

I have not conducted valuations during COVID but what I understand from valuers is that it has not been long enough to understand the financial implications of COVID-19.

However I am aware that for some asset types - trading related properties - there is a material uncertainty clause under VPGA10 but for some asset classes (namely office and industrial) this has been replaced with a Market Condition Explanatory note.

59
Q

What has been the RICS Guidance on Valuations during COVID-19?

A

During First Lock Down

VPGA 10 + VPS 3 - MATERIAL UNCERTAINTY CLAUSE

  • ‘High degree of caution’ should be attached
  • ‘Highlighted the importance of the VALUATION DATE’
  • Recommendation to keep the valuation under review.

NOW - Material Uncertainty been dropped for certain asset classes (industrial and offices)

Replaced with - MARKET CONDITIONS EXPLANATORY NOTE

  • Valuation is not subject to material uncertainty as defined in VPGA 10
  • This states that the valuation can still be relied upon.
  • It is more to provide context and background to which the valuation was prepared.
60
Q

Why is it important to maintain consistency and transparency in valuation?

A
  • If there is no consistency –> confusion.

- Transparency promotes trust, If no transparency people will lose faith in the valuation process.

61
Q

What are the 5 methods of valuation?

A 
Comparable 
Investment
Residual
Profits
Contractors method - DRC - depreciated replacement cost
62
Q

What are the different factors that can affect valuations?

A

There are both factors to do with the property and also factors to do with the lease.

Building - age, condition, layout

Lease - length of term/ break, restrictive clauses, tenure

63
Q

What does the RICS GN on Comparable Evidence in RE Valuation 2019 say for comparable evidence?

A

Outlines 3 forms of comparable evidence.

  1. Category A - direct comparables
  2. Category B - general market data
  3. Category C - other sources
64
Q

What does Category A say with regards to the hierarchy of Evidence?

A
  • Direct Comps that are contemporary
  • Completed transactions of near-identical properties
  • Completed transactions of similar properties
  • Completed transactions of similar properties with some missing info
  • Offers of similar real estate
  • Asking prices (with careful analysis)
65
Q

What does Category B say with regards to the hierarchy of Evidence?

A

GENERAL MARKET DATA THAT CAN PROVIDE GUIDANCE

  • info published from sources / databases
  • indices
  • historic evidence
  • demand and supply data
66
Q

What does Category C say with regards to the hierarchy of Evidence?

A

OTHER SOURCES

  • other real estate types and other locations
  • real estate yields
67
Q

What is high level valuation advice?

A
  • Realistic MV
  • Accurate Inputs
  • Managing expectations
  • Remaining in contact with client
  • Responding to queries
  • Reporting in accordance with the Red Book
  • Efficient timing, sticking to timelines
68
Q

What are the 5 exemptions in the Redbook?

A
  • Internal Purposes
  • Statutory Functions (not tax)
  • Negotiations
  • Agency and Brokerage work
  • Expert Witness
69
Q

How did you analyse your comparable evidence for your retail parade in Eltham?

A

For the Market Rent I looked at similar shops in terms of:

  • location
  • size
  • Recent of transaction
  • condition

Establishing a capitalisation rate I looked at:

  • Location - retail pitch
  • Lease term / Break option
  • Recent Transaction
  • Size
  • condition
70
Q

What comparable evidence did you find in Eltham?

A

My main piece of evidence was a retail parade that has sold near by, of slightly better covenant strength, but had a WAULT of 4 years. This created a yield of 6.5% and I therefore adjusted my yield to 7.5%

Most of the shops were let on either 3 year leases or 5 year leases with a break at year 3.

RFPs were around 6 months.

Not a high vacancy rate.

71
Q

What did you believe MRs were for Eltham?

A

£30psf ZONE A

72
Q

What type yield did you adopt in Eltham?

A

Net Initial Yield of 7.5%

73
Q

What is a Net Initial Yield?

A

It is a yield that incorporates purchaser costs

Rent / Purchase price (+ PCs)

74
Q

What was your Market Rent in Shepherds Bush?

What was your passing Rent

A

£100 psf ZONE A

£80 psf ZONE A

75
Q

What yield did you adopt in Shepherds Bush? and Why?

A

My research into the market showed yield evidence between 4.5%-5%.

My property was located in a good retail location with a strong covenant and despite the break in year 3 I adopted a yield of 4.5%

76
Q

What yield did you adopt in Shepherds Bush for your vacant possession value?

A

6% to reflect the site was Vacant

+

Allowed for rates (£35 psf) and re-letting costs (10% of MR)

77
Q

If your lease had 15 years with no break how would you value it?

A
  1. CAPITALISE MR INTO PERP at an appropriate yield

The LR is too far in the future to account for that specific LR.

78
Q

What was your MV for the retail unit in SB?

What was your MV on the special assumption it was Vacant?

A

£1.7 m

£1.5 m

79
Q

Did you make any special assumptions for your valuation in SB?

A

Yes.

Special assumption the property was vacant.

80
Q

How would you value a property which was overrented?

A
  1. CAPITALISE THE MR INTO PERPETUITY AT AN APPROPRIATE YEILD (Found from Comp Evidence)
  2. CAPTIALISE THE TOP SLICE (difference between MR and PR) UNTIL END OF LEASE at a higher yield to reflect risk of tenant defaulting
  3. ACCOUNT FOR ANY VOID PERIODS ON LEASE EXPIRY (Rates and SC and Re-letting costs)

SO DEFER THE MARKET RENT INCOME

  1. DEDUCT PC TO GET A MV
81
Q

If your property in Shepherds Bush was a rent review, rather than a break, how would you differ your approach?

A

I would not take into consideration a void period.

82
Q

What yield did you adopt for your vacant office in Embankment? Talk me through your reasoning for choosing that yield

A

Yield evidence for occupied buildings ranged between 3-3.5%.

I found one comparable building that sold when it was vacant for 4.5%. I therefore adopted this yield as it was comparable in size, location and condition.

83
Q

What Market Rent did you establish for your Vacant Office in Embankment?

A

£70 psf

84
Q

You mentioned you cross-checked your valuation with the comparable method. What was your valuation per sq ft?

A

£1,200 psf

85
Q

What yield did you adopt for your valuation of a retail parade in Eltham?

A

7.5% for the term

8% for the reversion to reflect the risk that they were local tenants

86
Q

What yield did you adopt for your VP value on your parade in Eltham?

A

8.5%

87
Q

What MV was your retail parade in Eltham?

What MV was your retail parade in Eltham on the special assumption of VP?

A

£1.2 m

£1 m

88
Q

What is a special assumption ? Where would you find guidance on these?

A

Something that is not true but is taken to be true at the valuation date in order to produce a MV.

Eg. Special assumption property is Vacant.

Eg. Special assumption property has PP.

Guidance in VPS 4

89
Q

TALK ME THROUGH YOUR ELEMENENTS IN THE LEASE FOR YOUR SHEPHERDS BUSH EXAMPLE THAT GAVE RISE TO VALUE?

A
  • Covenant
  • Lease length (3 years until break but 8 years left on lease).
  • Location - specifically the pitch
  • Specification to an extend - but it was retail
  • No restrictive user clauses.
90
Q

What, specific to this example, made you feel it was suitable for loan security purposes?

Shepherds bush

A

Provided a MV which Had accurate inputs to produce a value that could be secured against the loan.

  • the tenant was strong
  • central location
  • re-letting and saleability ability would have been strong.
  • Here the income would service loan value.

Provided an option where the T could leave after 3 years and they would still be able to relet the property/ sale the property.

Vacant property - fairly decent location, if the landlord was to default and the bank was to take ownership of the property - whether youd be able to resell the property or relet the property.

91
Q

What was the width and depth of the unit?

A

Width 8 m2

Used depths of 6.1m

92
Q

What are the elements of a lease that influence value?

A
  • Covenant strength
  • Rent
  • Length
  • Break
  • Rent reviews
  • Restrictive covenant
  • Inside or outside the Act
  • User
  • Alienation
  • Repair (FRI) – tenant is responsible for everything either.
93
Q

Where did your advice add value for your valuation in Eltham?

A
  • I advised the client on my opinion of market rent and that it was rack-rented.
  • I used my expertise to advise the client of void periods in the area.
  • I advised the client that it would be neccessary to increase the yield for the income after the breaks or lease renewals as they were local tenants and therefore riskier. (increased it from 7.5% on MR to 8% on Passing Rent).
94
Q

Where did your advice add value for your valuation in Shepherds bush?

A
  • Added value by researching the Market to apply my expertise to my yield and market rent
  • added value by conducting the term and reversion approach and applying different yields to advise the client of a realistic MV.
  • added value by providing a SWOT analysis and lender action points.
95
Q

I see you advised the client on MV – could you explain the advice on the elements on the valuation and this example?

Shepherds bush

A
  • Rent
  • yield
  • void period

in turn, location, condition, lease length, covenant strength

96
Q

How did you establish the shop was under-rented?

A

Rents ranged between £90 - £100 pounds.

I looked at the evidence and compared retail pitch, specification, retail space

97
Q

What is the Red Book and what is its purpose?

A

It is a set of requirements and offers guidance to assist valuers in valuing certain types of property.

It’s purpose:

  • CONSISTENCY
  • PROMOTE the ETHICAL STANDARDS IN VALUATION
98
Q

When was Red Book Global introduced?

A

31 Jan 2020

99
Q

Could you run me through the changes of the Red Book 2020?

A

MAIN - incorporates the IVS into the Red Book

  1. WRITTEN = electronic (including val software)
  2. VPS 3- reports must STATE CLEARLY:
    • Valuation approach
    • reasoning of findings
    • emphasis on sustainability matters
  3. Requirement for valuers of development property to apply a minimum of 2 appropriate methods to value development property IVS4
100
Q

What is the RICS UK National Supplement 2018?

A

It adds to the Red Book Global for valuations which are subject to UK jurisdiction.

101
Q

What is the Structure of the Red Book?

A

1 & 2 Intro and Glossary

  1. Professional Standards
  2. Valuation PERFORMANCE STANDARDS
  3. VPGAs
  4. IVS
102
Q

What does VPS 4 Cover?

A

Basis of Value, Assumptions and Special Assumptions

103
Q

What is an Assumption / Special Assumption?

A

Assumption - something that can be assumed to be true without specific need for investigation

Special Assumption - something that is not true but is taken to be true for valuation purposes eg. vacant possession / site has planning permission

104
Q

Could you define MV?

A

Amount at which an asset would exchange:

  • at the valuation date
  • willing buyer and seller
  • property marketing
  • arms length transaction
  • both parties acted knowledgably, prudently and without compulsion
105
Q

What is proper marketing?

A
  • the marketing that is the market norm in that particular area relating to that particular property
106
Q

What did you do prior to conducting the work?

A

Competent
Interests
TofE

107
Q

How did you ensure you were competent?

A

Skills
Knowledge
Understanding

108
Q

What is a capitalisation rate?

A

It is usually the rent in relation to the purchase price expressed as a percentage

109
Q

What type of yield did you adopt for your vacant office in embankment?

What percentage

A

All risks yield

Net yield

I adopted a yield of 5% for the vacant office

110
Q

For your residential portfolio, did you consider any specific section of the Red Book?

A

VPGA 9

It states it may be appropriate to apply either a discount or a premium to your aggregate value based on the fact you may get a discount or a premium if they were sold as a portfolio.

However I did not feel it was appropriate in this case and that was not the requirements of the client

111
Q

Do you think that the Commercial RE agency PS is out of date?

A

Potentially given it was released back in 2016 and market will have changed

112
Q

Talk me through your marketing strategy recommendations in Mayfair?

A

My client wanted to minimise costs.

  • Launched property on Costar, Agent Society, my Website/ Realla
  • Decided against a launch
  • Erected a letting board as high foot fall and to attract unrepresented tenants.
113
Q

WHY DO YOU NOT SAY £5 HIGHER ON YOUR MARKET RENT?

A

ESTATE AGENCY ACT - MR must be fair and accurate

114
Q

What was your clients marketing budget for the marketing procedure?

A

Did not have a specific budget just to keep costs low

115
Q

How much was it to install letting board?

A

£150

116
Q

What type of agency basis were you?

A

Sole

117
Q

What is the difference between Sole, Joint and Multiple agency?

A

Sole - only one representing client and receive a fee

Joint - two agents representing C and split the fee

Multiple - agents - lots of agents representing C and whoever does the transaction gets the fee

118
Q

Did you check the covenant strength?

A

Yes conducted the profits test.

Did not satisfy so advised to get financial advice.

119
Q

If they did not satisfy what happened?

A

Provided a deposit of 6 months rent + VAT

Could have had a guarentor but L was satisfied with a deposit

120
Q

How is a deposit handled?

A

Rent Deposit Deed

121
Q

What is included in a rent deposit deed?

A
  • Date
  • Name of L and T
  • Reference to the Lease
  • Amount of the Deposit
  • Address of Property
  • Default - circumstances when the deposit can be used eg. If T does not pay rent or comply with covs.
122
Q

Is the rent deposit deed part of the lease?

A

It is attached but separate as exclusive to the tenant

123
Q

How did you estimate fit out costs in your financial spreadsheet?

A

Estimate from client £80 psf

124
Q

What was the type of Business in Holborn?

A

Tech firm

125
Q

Why did you decide against serviced offices for Holborn?

A

They had clients visiting their offices on a regular basis and they wanted their own front door and access to meeting rooms all the time

126
Q

Was your office in Holborn Grade A spec?

A

Yes

127
Q

What are rents in Holborn?

A

£65-£70 depending on spec and where abouts in Holborn

128
Q

Where is the prime office area in Holborn?

A

Id say New Oxford Street

129
Q

Did the reverse premium trigger AML checks?

A

YES - JAN 2020

Whenever there is a capital sum that is paid from one party to another, AML checks are required on all parties involved with the deal, both on the client and opposing side.

The key difference would be looking at the source of funds for the payer.

130
Q

What is the update on Money Laundering 2020?

A

FIND OUT

131
Q

Do you conduct AML checks for lease renewals of RR?

A

No as their is no exchange of interests in land

Simply a fee

132
Q

Where was your acquisition in Mayfair?

A

Grosvenor Street

133
Q

Is Grosvenor Street Prime Mayfair?

A

I would say Berkley Square is more prime but this was pretty prime

134
Q

How long from marketing property to completing?

A

3 months - normal for the market

135
Q

If your property does not have an EPC, how long do you have to get one?

A

7 days to commission one

136
Q

How do you adhere to the Estate Agency Act whilst writing disclaimers?

A

Personal interests must be declared on particulars

137
Q

What is required by the bank for valuations for loan security purposes?

A

CONFLICTS
- declare any

SPECIAL ASSUMPTIONS
- state in TofE

REPORT

  • suitable for loan security
  • reasons for method adopted
138
Q

For your valuation of an office in Embankment, what were the different factors that affected value?

A
  • It was vacant - no covenant strength or term
  • Location
  • Condition - recently refurbished to CAT A spec

Vacant property - decent location, if the landlord was to default and the bank was to take ownership of the property - whether you’d be able to resell the property or relet the property.

139
Q

For your valuation in Embankment, why did you deem it suitable for loan security purposes?

A
  • Despite being Vacant property
  • It was in a decent location
  • if the landlord was to default and the bank was to take ownership of the property based on my inputs the bank would be able to sell or relet the property.

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