19. Case Study (Part 3 - Val) Flashcards

Question

What were your co-living rent comparables?

Answer 1

Yes, I reviewed a range of second-hand 1-bedroom C3 residential comparables nearby, with rents ranging from £1,950 to £2,500 PCM exclusive of bills. Notably, Curie House, part of Stone Studios, a 110-unit,scheme on the same road with concierge but limited amenities, provided especially relevant comparables. Rents there average around £2,300 PCM exclusive of bills. However, the units in Curie House were larger at 500 sq ft rather than near 200.

Answer 2

* Most similar to subject * Battersea, on river Thames, 10 min from Clapham junction, * Gym, co-working, terrace, cinema * Opened June 2023 * Halcyon & DTZ Investors – COLIV Fund * 50% pre let + fully let by end of month-1 * Operator – Folk * 263 units * 180-290 NIA per unit * Rent - £1,899 - £2,523 pcm * Average rent - £2,090 pcm

Answer 3

* Less central, sort after location, but similar offering * Right next to Earlsfield station (Wimbledon), SW London * Gym, co-working, terrace, cinema * Opened Sep 2022 * Halcyon & DTZ Investors – COLIV Fund * Fully let in 5-months * Operator – Folk * 315 units * 178 – 280 NIA per unit * £1,770 - £2,314 pcm * Average rent – £2,018

Answer 4

* Smaller comparable, only 81 units, less central and lower spec * Ealing Broadway, directly next to tube * Wellness studio, gym, shared dining * Opened April 2024 * Developer – Urbane * Funder – Moorfield group * Operator – VervLife (investor homes for students – operator, founded in 2021) * 81 units * 161 – 226 NIA per unit * £1,775 - £2,300 pcm * Average rent - £1,950 pcm

Answer 5

* Larger & greater amenity scheme, hybrid long let and short let given location in Canary Wharf, attraction to companies needing short lets in the city. * 10-15 min walk from canary wharf business district, DLR * Spa, gym, swimming pool, * Completed 2019 -original the Collective scheme * Acquired by CrossTree for £190M in 2022 * Developer – The Collective * Operator – ARK (Founded in 2022 - Backed by investor CrossTree and BTR developer/operator Re:shape generation) * 705 units * 140 – 323 NIA per unit * £1,699 - £2,499 * Average rent - £1,980

Answer 6

* Similar central location, but larger units, smaller scheme in scale, higher spec and rents exclusive of bills – not directly comparable. Least comparable. * Gym, spa, sky lounge, roof bar. * Between Clapham junction & Wandsworth. * Completed/ opened 2024. * Developer – Dandi Group (founded 2005, family business) * Operator – Dandi Living * 159 units. * 257 – 317 NIA per unit * £1,750 - £1,900 * Average rent £1,800 (exc bills)

Answer 7

* I adopted the comparable method, assessing co-living rental evidence across London due to limited local data in Hackney Wick. * I compared schemes based on location, unit size, amenities, specification, and operator relative to the subject development * I gave the most weight to Florence Dock in Battersea, achieving £2,090 average rent per unit, because of its similar central London location, size, and amenities compared to the subject development * Sunday Mills in Earlsfield, achieving £2,018 average rent per unit was also given strong weight because of its similar unit’s sizes. * Based on these, I estimated unit rents as: o £1,970 PCM for standard studios o £2,275 PCM for adaptable studios o £2,500 PCM for M4(3) studios * This gave an average unit rent of £2,013 PCM

Answer 8

* I estimated unit rents as: o £1,970 PCM for standard studios o £2,275 PCM for adaptable studios o £2,500 PCM for M4(3) studios * This gave an average unit rent of £2,013 PCM.

Answer 9

I calculated the Market Rental Value (MRV) separately for each standard unit type: * £1,970 PCM for standard studios (303 units) * £2,275 PCM for adaptable studios (16 units) * £2,500 PCM for M4(3) studios (18 units) I then calculated a weighted average MRV by multiplying each unit type’s MRV by its proportion of the total units. This approach accurately reflects the true mix of units and their individual rental values. I applied a slightly higher rent for the standard studios (£1,970) compared to comparable units because these studios are larger at 190 sq ft and benefit from a strong Hackney location. I also took into consideration what PRS properties were achieving as rental values in the local area and the high specification of the scheme.

Answer 10

* Office - located on Wallis road. * Bottom of 1 Prince Edward Road – a modern purpose built-block * Open market letting * In newly developed mix use building * Let Aug 2023 * 1,350 sq ft * £32 psf / £44k pa rent * Let as office on 5-year term with break option in year 3. * Ground floor * Underfloor heating/ fully glazed frontage / small garden. * Bottom of mixed use development. * Let by small private business

Answer 11

* Located 140 m south of Hackney Wick overground. * Ground floor purpose built commercial office. * Let December 2023. * 1,432 sq ft * £24.80 psf / £36k pa * Let on 10-year term with break option at year 7 * Open market letting * Let to Mimbar Foundation – Islamic faith charity

Answer 12

* Located 400m north of subject property also in Eastwick and Sweetwater Olympic Park development. * Another mixed-use building. * 1,300 sq ft. * Let November 2023. * Open market letting. * £30 psf / £39k pa * Let as retail unit to aerial dance studio * 15-year term / 6 months’ rent free

Answer 13

* As I do not have access to same software as valuers, I was limited by the comparables I could find from agents and in the public domain. But this was initial appraisal. * Could not find comparable size comps (subject unit had the potential to be split) * Rubber studios – even though least recent transaction, on same road, also office use. * Other two still comparable but in East Wick and Sweetwater development – further out. Not as prime location. Considering next door building ground floor is let to Sainsburys, could command stronger covenant strength tenant.

Answer 14

* In smaller block (D2) * 5,276 NIA * Most likely to be let as either office or retail. * Headline/ market Rent - £31.6psf * £30.01psf effective rent factoring in 6 months rent free on 10-year lease * £158k per annum Use class E - shops office gyms restaurants

Answer 15

* Market Rent is the estimated amount at which an interest in real property would be leased on the valuation date between a willing lessor and a willing lessee, on appropriate lease terms, in an arm’s length transaction, following proper marketing, and where both parties act knowledgeably. * Effective Rent is the actual income received by the landlord after accounting for incentives like rent-free periods, spread evenly over the lease term.

Answer 16

Headline Rent: The initial rent stated in the lease, before incentives Net Effective Rent: The actual rent received by the landlord over the lease term, adjusted for incentives. Instead of applying 100% of market value we apply a percentage. This is calculated depending on the lease terms we expect the property to achieve. [( lease term (10 years) - rent free (6 months)/ lease term (10 years) ] = 95% 95% * £31.6 (Headline rent) = £30.0 (effective rent)

Answer 17

* It was a conservative and market-aligned assumption. * 6 months’ rent-free is common on longer lease terms, particularly 10 years or more.

Answer 18

* Acquired by Realstar on behalf of SMA with University of Cambridge Pension Plan * Nov 2024 (Was told about it by Halcyon) * £22.5M sale price * 4.75% NIY * Inferior location – Brixton Junction * 63 coliving assets (majority studios & 1 beds) * Average unit size 279 psf * All inclusive * Renovated 1940s building in Brixton * Node Living: Global operator (America, Spain) * Node: Founded in 2016 by former managing director at Blackstone with 20 years’ experience in real estate * Realstar: Global Real estate investor, with £3.5B in assets, investing in vertically integrated owner operators, UK operations in BTR

Answer 19

* Acquired via forward funding by Hub & Bridges * Wood Lane – west London, north of Shepherd’s Bush in London Borough of Hammersmith and Fulham. * Feb 2024 * 209 co living assets + Ground Floor Office + 60 affordable housing units for Women Pioneer Housing * £88M * 4.35% * Keen yield especially for FF * Developer: City Developments Limited (CDL), secured planning. * Expected completion 2026 * 250-year leasehold * BREEAM excellent, PV, Heat pumps * Bridges Fund Management: Impact let investment firm focusing on sustainable and inclusive projects. * HUB (Co-Developer): Real estate developer focused on urban regeneration projects. * Women’s Pioneer Housing: Not for project, providing safe secure and affordable homes for single women. * City Developments Limited (CDL): Singapore based real estate developer.

Answer 20

* Acquired via forward funding by JV between Blackrock and Outpost Management. * North Acton – West London within Borough of Ealing. On central line. * 32-storey Co-liv development * Feb 2024 * 462 units * £170M sale price * 4.60% NIY * Developer: Tide Construction * Co-Liv FF * Blackrock: Real estate arm of global bank Blackrock. * Output management: UK based residential focused real estate asset management firm operating under Enclave brand. * Library, cinema

Answer 21

Took all into consideration: * Yardhouse, Wood Lane (4.35%) — given the greatest weight because of similar unit size, specification, BREEAM excellent rating, and the most comparable location. * Brixton Junction, Node (4.75%) — mid weight due to being a standing asset but in an arguably inferior location. * The Castle, North Acton (4.60%) — considered but with less weight; forward funding deal, inferior location, but offers far more amenities like a spa.

Answer 22

* Forward fund = higher NIY → reflects development, void, and leasing risk, plus no immediate income. * Operational sale = lower NIY → income-producing from day one, so lower risk and stronger covenant visibility. * Higher risk = higher required return = higher NIY. * Adjust comps to ensure like-for-like analysis in valuations.

Answer 23

* Roman road – popular secondary retail destination. * Other side of Victoria Park * Passing rent £14,500 pa. * Smaller 797 sq ft leaseholder retail unit * Sold at Auction. * Let to Independent tenant – WAULT 11 months at sale * Most comparable size and location but weaker covenant strength and short lease. * 7.67% * Sold for £185k (£232 psf)

Answer 24

* 3 miles south of subject property. * Close to old street underground station * Between Islington & Hackney, in Shoreditch. * 7 ground floor retail units – altogether extending 61,695, so individual units c.8,000 (comparable) * Super location to subject. * 7 tenants * 11 year WAULT * £2.7m passing rent * Occupiers include Argos, Co-op, Aldi.

Answer 25

* Comprises 5 commercial units (2,000 sq ft each) used as office, gym, nursery — multi-let to 4 tenants * Bottom of Bagel Factory, resi development. * 10,472 sq ft total * Sold March 2023 via auction for £2.7M * 9.89% NIY * £258 psf capital value. * 999-year long leasehold from Jan 2018 at a peppercorn ground rent. * Comprises 5 commercial units (2,000 sq ft each) used as office, gym, nursery — multi-let to 4 tenants. * Less prominent than main frontage but still part of the Bagel Factory development. * All short leases expiring in 2025. * Market conditions have improved since sale; subject property would likely command sharper yield today.

Answer 26

* No single overriding comparable – each had limitations (size, lease terms, covenant strength, sale context), so I applied professional judgement across all to select my 7.0% NIY assumption. * 540 Roman Road – Closest in location, but smaller, 11-month WAULT, and sold at auction — unclear if distressed; helpful reference but not directly comparable. * 185–205 Old Street – Superior location, strong tenant covenant (Co-op, Aldi, etc.), long 11 year WAULT; lower yield reflects this — less comparable, but useful to benchmark given neighbouring Sainsbury’s. * Bagel Factory – Close in location and unit sizes, but let on very short leases (all expiring 2025), mixed-use tenants, outdated comparable, and sold at auction — possibly distressed; informative but not directly comparable. * This was an internal valuation with limited data availability (e.g. no CoStar access); a formal Red Book valuation would provide broader market evidence.

Answer 27

* 5,276 NIA * Most likely to be let as either office or retail. * Headline/Market Rent - £31.6psf * Effective Rent - £30.01psf (factoring in 6 months’ rent free on 10-year lease) * £158k per annum * 7.0% capitalisation rate * Minus 6.8% purchaser costs * MV - £2.1M

Answer 28

£137.9M £402k per unit for Co Living GDV only

Answer 29

£3,576 per sqm / 10%

Answer 30

£5,045 per unit

Answer 31

£6,039 (25%)

Answer 32

Co-living unit average rent: £2,013 pcm Commercial effective rent £30.0 psf

Answer 33

* Deducted agency fees in purchaser cost but should have also included 1% GDV sales cost. * Letting cost included in opex.

Answer 34

* Sales costs: should be included at 1% of GDV for legal and agent fees (Not included in my calc – oversight by me) * Letting costs: included within 35% higher OPEX cost (regular re-lets) * Letting is part of the operator’s ongoing management role in co-living schemes.

Answer 35

SDLT at the prevailing rate (5%) 1% agent fees 0.5% legal fees 0.3% VAT

Answer 36

* RICS guidance suggests the level of Contingency depends on construction risk and development stage. * Early-stage appraisals = higher contingency (more unknowns). * Complex or high-risk schemes = higher contingency. * This case: High-Risk Building + demolition risk + early stage residual = higher contingency justified.

Answer 37

Internal appraisal used 25% OPEX → based on limited early evidence. Red Book valuation later increased to 35% OPEX (£9k a bed)→ backed by greater availability of evidence * Based on previous valuations (Maida Vale, Earlsfield – The Collective) * Halcyon data: £5,500–£6,200 per bed incl. voids = ~25% of income * Market reports: BTR OPEX typically 18%–25% * I flagged PBSA comps showing £9,500/bed and 35% OPEX * Under director guidance, used 25% in internal appraisal * Red Book valuer instructed to use market-backed OPEX → adopted 35%

Answer 38

* Chatfield Road, Battersea – Opened June 2023 - 60% pre let (263 total units) * Dandi’s Hazel Court, Wandsworth – Opened July 2024 - 100% pre let (160 total units) * Undersupply in Hackney – 4th lowest borough for Co Living provision.

Answer 39

A development appraisal is a financial tool used to assess the viability of a scheme, based on the developer's inputs. A residual valuation is a valuation method used to estimate a site’s value, applying market-level inputs at the valuation date. Residual appraisal: GDV - Total Development Costs - Profit = land value Development appraisal: GDV - Total Development Costs - Fixed Land Price = Profit

Answer 40

Gross Development Value (GDV) * £137.9m – based on market rent and yield comps * Less 6.8% purchaser costs → reflects investor acquisition costs * + Fill-up income added during stabilisation * → Net Development Value (NDV): £130.7m * Note: Missed 1% of GDV sales fee in internal model – corrected in Red Book Costs: * Build cost: £45.5m * Contingency (10%): £4.55m * Professional fees (13%): on build cost Planning & Statutory Costs * CIL: £1.6m * S106: £738k * Payment In Lieu (Affordable): £3.0m * Right of Light: £681k * FF&E: £1.7m Finance * £25.8m total finance cost * 9.0% interest rate * Structure: ▪ 100% of land + 50% of dev costs over 45 months ▪ 100% of all costs for final 6 months Developer’s Profit * 17.5% on cost = £15.6m Land Value Result * Gross land value: £25.65m * Less acquisition costs (5% SDLT + 0.25% fees) = £1.35m * Net land value: £24.3m (≈ 20% of NDV)

Answer 41

20% of NDV 18% of GDV * 15%–25% of NDV is typical for high-density urban schemes. * My 20% land value fits well within this range, reassuring me I made balanced costs, finance, and profit assumptions. * I also triangulated with previous co-living land deals my company underwrote, my figure is slightly lower than comps, which is reassuring.

Answer 42

* The Building Safety Levy (BSL) is a charge on high-risk residential developments under the BSA, introduced to fund unsafe building remediation. * Announced in April 2023; first draft regulations published July 2025. * I spoke with Kevin Berine (company director), who’s been engaging with Government due to implications for his retirement fund. * As Gateway 2 approval is expected before 1 Oct 2026, the levy won’t apply – not included in my appraisal or Red Book valuation. * The site is brownfield, qualifying for a 50% discount under the draft regs. * Hackney’s indicative BSL rate: £35/m² – equating to c.£310,000. The appraisal has sufficient headroom to absorb this without impacting viability.

Answer 43

* Restrict use of land or the form of development. * Carry out specific activities (e.g., construction requirements). * Allocate land for specific uses. * Make financial contributions Typical community contributions could include: * Affordable housing (on-site or via a payment in lieu). * Public open space. * Education funding or facilities. * Highways improvements and transport infrastructure. * Town centre enhancements. * Healthcare contributions

Answer 44

* A right of light is a private, legally enforceable easement or right to a minimum level of natural illumination. * It is an easement enjoyed by one landowner over the land of someone else, and it can be asserted by anyone with an interest in land. * Rights of Light Act 1959

Answer 45

* S106 is a negotiable, site-specific agreement that can include affordable housing, open space, or other community benefits. * CIL (Community Infrastructure Levy) is a fixed charge set by local authorities to fund broader infrastructure like roads, transport, and flood defences. It varies by borough but is non-negotiable. * Affordable housing contributions are often secured through S106 agreements as part of negotiations, requiring developers to provide or fund affordable units. * Developers cannot be double charged, but both CIL and S106 can apply separately for different purposes.

Answer 46

* Payment In Lieu - cash contribution where affordable housing can’t be delivered onsite. * £3.0M * Part of the S106 cost – just split out in my residual.

Answer 47

* Consulted development lending team for current market rates. * Adopted cautious 9.0% finance cost assuming 100% funding of costs. * Red Book used lower rate, reflecting lower developer cost of capital.

Answer 48

* Purchaser costs (SDLT, legal, agent fees) are cash outflows paid by the purchaser. * Subtracting them from gross land value gives net residual land value. * Net residual land value reflects the true amount the borrower would receive if they sold the site.

Answer 49

5% SDLT on values above £250k Legal fees 0.25% of value (I made an error should have been 1% agent fees and 0.5% legal)

Answer 50

* Reviewed the Turner & Townsend programme and build cost assumptions * Octopus Capital Development Director – Marcus Adam * Reviewed against BCIS Again, stress internal val & would instruct cost consultant report.

Answer 51

* The Red Book valuation valued the land at £28M, slightly higher than my £24.30M. * They used a 7.5% build cost contingency, lower than my 10%, noting high build cost assumptions already. * Their finance rate was lower at 8%, assuming cheaper developer source of capitals (WACC lower). * They assumed a higher 35% OPEX cost and slightly higher rents. * Both used the same NIY assumptions.

Answer 52

* Triangulation – check residual against real market evidence * Comparable method = strongest cross-check for land value * Ensures result is market-reflective and credible Land Value per unit: * This scheme: £72,107 per unit * Maida Vale (2020, Savills): £138,000/unit * Hackney Wick (2021, C&W): £123,750/unit * Earlsfield: £73,548/unit

Answer 53

194 - standard 272 - adaptable 301 - M4(3) Typo in my submission (272 not 172)

Answer 54

Net Internal Area: Usable floor area within a building, measured to the internal face of the perimeter wall. Excludes common areas and internal structural walls.

Answer 55

International Property Measurement Standards Global recognised framework to standardise property measurement. IPMS 3 - equivalent of NIA measures usable floor area but includes columns.

19. Case Study (Part 3 - Val) Flashcards

(92 cards)