1
Q
CIT
Prior to commencing a valuation how are you competent to to take on an instruction what are the steps?
A
C - Competence (skill/understanding/Knowledge SUK)
I - Independance (conflicts)
T - ToE (in writing confirmation of instruction)
2
Q
Prior to commencement of the valuation - what property related info would you ask for?
A
Tenancy Schedule, area schedule, asset management, cap ex, service charge, title
3
Q
What is a typical timeline of a valuation instruction?
A
- Recieve Instruction
- Check competence (SUK)
- Check independance (COI)
- Issue ToE
- Recieve signed TOE
- Gather info (leases/title/plans)
- Undertake DD
- Inspect / measure
- Research market, assemble/verify/analyse comps
- Undertake Valuation
- Write draft report
- Check valuation internally (signed off)
- finalise/sign report
- Report to Client
- Issue invoice
- Ensure Valuation file in good order
4
Q
What are examples of Statutory Due Diligence for Valuations and why do valuers undertake Statuatory DD?
A
- Asbestos register
- Title and tenure
- Planning history and compliance
- Business rates and council tax
- Contamination
- Equality Act 2010
- Environmental matters (substation)
- EPC rating (if available)
- Flooding
- Fire Safety Compliance
- Health & Safety Compliance
- Highways
- To check no material matters which could impact upon the valuation
5
Q
What are the three valuation approaches in the RBG and where they found?
A
IVS 105 Valuation Approaches and Methods
- Income Approach - converting current/future cash flows into capital value (inv/residual/profit)
- Cost Approach - cost of the asset by purchase or construction (DRC)
- Market Approach - Using comparable evidence (comparable)
6
Q
When choosing a valuation approach/method what must the valuer have consideration of?
A
Nature of asset
Purpose of valuation
statuatory or mandatory requirements in thier jurisdication
7
Q
What are the 5 methods of valuation?
A
- Investment Method
- Profits Method
- Residual Method
- Depreciated Replacement Costs
- Comparables Metod
8
Q
WHat are the 4 steps of the comparables method?
A
- Search/select comps
- Confirm/verify details and analyse headline rents to get NER
- Assemble comps in schedule and adjust using hierachy of evidence
- Analyse comps to form opinion of value
9
Q
What is the RICS document regarding Comparable Evidence?
A
Professional Standard: Comparable Evidence in Real Estate Valuation 2019
10
Q
According to RICS advice what should a valuer do if there is a lack of comparable evidence?
A
Carry out valuation as lack of evidence shouldn’t prevent valuation being undertaken.
Valuer should look further afield
11
Q
What is the Hierachy of Evidence and the different categories of Evidence?
A
Understanding that some evidence available to the valuer will be more relevant than others.
Category A: Direct Comparables
- Completed transactions of identical properties
- Completed transactions of similar assets
- Completed transactions where not all data available (enough to use)
- Offers made - similiar assets
- Asking prices - similiar assets
Category B: General Market Data:
- Commercial Databases
- Indices
- Historic Evidence
Category C - Other Sources:
- Transactional data from other asset classes/locations
- Background data (economic factors)
12
Q
How should valuers go about finding comparables?
A
Inspection of an area (agent boards)
Local agents
Databases
Market sentiment (useful when lack of evidence)
13
Q
How does the investment method of valuation work? and when is it used?
A
Rental Income capitalised by capitalisation rate to get CV
Used if there is an income stream
e.g. Term & Reversion / Hardcore & Layer
14
Q
What method of valuation would you use for a standing investment which is vacant for red book purposes?
A
Income appraoch
Investment method - have an initial void period and then would capitalise MR
Comparables to cross-compare
15
Q
What yield do you use if vacant?
A
EY
16
Q
What is the conventional investment method?
A
Growth Implicit - builds future rental growth into single capitalisation rate
17
Q
What is the calculation formula for the conventional method of valuation?
A
Rent Recieved or Market Rent x YP = MV
18
Q
When is the Term and Reversion Method used?
A
Reversionary Investments
19
Q
How do you undertake a term and reversion valuation?
A
Term (passing rent) capitalised until next lease event at initial yield. (YP for x years at x% yield). Lower yield as less risky.
Reversion to Market rent valued into perpetuity after being deferred at the reversionary yield. (YP Perp at y% yield. PV pf £1 for x years). Higher yield as more risky.
20
Q
When can the hardcore (bottom slice) and layer (top slice) method be used?
A
For reversionary and over-rented assets
21
Q
How to undertake a Hardcore and Layer Valuation for reversionary assets?
A
- Used when reversionary assets can be hit quickly
Hardcore (passing) capitalised into perpetuity. (YP perp at x% yield).
Layer (reversion) capitalised into perpetuity but is defferred (Yp Perp at X% yield). PV of £1 y years
Equivalent yield used or a difference in yield profiles like term and reversion.
22
Q
How to undertake a Hardcore (bottom slice) and Layer (top slice) Valuation for over-rented assets?
A
Hardcore (market rent) capitalised into perpetuity at initial yield (lower as less risky) - (YP perp at x% yield)
Top Slice/Layer (passing rent - Market rent) capitalised for remaining term at initial yield adjusted for higher risk
YP for x years at y% yield)
Yield differential - top slice inflated to reflect higher risk of over-renting. No PV of £1 as both layers of income are recieved now.
23
Q
In the hardcore layer (core & top slice) method for over-rented property, the capitalisation rate applied on the topslice/layer - why is it a discount?
A
Top slice unlikely to be achieved again in the open market and therefore apply discount to capitalisation rate c.50-100bps depending on location (London be 50bps, regions might be 100bps)
24
Q
If the property is rack rented what yield would you use?
A
Initial yield
25
# RTL
If you are inputting a new tenant into lease where should you look?
Read the Lease
26
If a property is over-rented at the break option how would that help the tenant?
Negotiating tool to get more rent free
27
What does a yield measure?
Measure of the return on investment
28
How are yields expressed ?
Percentage of capital invested
29
How do you calculate a yield?
Income/Price x 100
30
Waht is the years purchase?
Number of years required to repay the price
31
What is the years purchase calculations?
Years Purchase= divide the yield (as a number) by 100
100/8% = 12.5 years
32
What do yields reflect/factor in?
Risk
33
What are major factors to think about when determining yields?
* Prospect for rental and capital growth
* Quality of location/covenant
* Use of property
* lease terms
* voids/risk of vacancy
* security of income
* liquidity
34
What is an all risk yield?
Remunerative rate of interest used in the valuation of a fully let property at market rent reflecting all prospects and risk attached to the investment
35
What does a true yield assunme?
Rent paid in advance not in arrears
36
What does the Nominal yield assume?
Initial yield assuming rent paid in arrears
37
What does the Gross Yield not adjust for?
Purchaser's costs
38
What is the net yield adjusted for?
Purchaser's costs
39
What is the equivalent yield and why do you use this in valuation?
The average weighted yield when a reversionary property is valued using an initial and reversionary yield.
Useful for comparisons and to assess overall property and the EY includes the valuers professional judgement and assumptions applied
40
What is the initial yield?
Yield based on current income and current price
41
What is the reversionary yield?
Market rent divided by current price on asset let at rent below market rent
42
What is a running yield?
A yield at a moment in time
43
What is the difference between yield and an input?
Yield is an input that dictates value
return in the output
44
What is the RICS Guidance on DCF Valuations?
RICS Practice Information DCF Valuations November 2023
45
is DCF method growth explicit or implicit and why?
Explicit - identifies growth assumptions rather than incorporating into an all risks yield
46
How does a DCF determine value by examining what and then discounting what?
Determines value by examining future net income or projected cash flow over period and then discounting cash flow to arrive at estimated current value
47
Are DCFs used when projected cash flow is stated over finite or infinite period? And what are typicaly examples of when would be used?
Used when projected cash flows are stated over finite period
Short leasehold interests
Complex tenure
Phased developments
alternative investments
48
What is the four step process of the DCF method?
1. estimate cash flow (income - expenditure) for hold period
2. estimate exit value at end of hold period
3. Select discount rate to reflect property/market risks and apply cash flow
4. Value is sum of completed discounted cash flow to provide NPV
49
What is an IRR and what does it assess?
Is the rate of return at which all future cashflows must be discounted to produce a NPV of 0
Asseses total return of an investment opportunity.
50
If there is no IRR software how would you calculate?
Interpolation
51
If NPV is positive have you exceeded or not achieved target rate of retrun and vice versa?
NPV Positive - exceeded
NPV Negative - not achieved
52
What is a NPV?
Sum of the discounted cash flows
53
In the DCF model - how should you work out the discount rate?
Comparable evidence.
If no evidence - financial rates of return + risk premium for property
54
When should you use the Profits Method of valuation?
When valuing trade related property and value is derived from business/trading potential and profit and usually sold as part of a busines
Principle os value of property depends on profit not the physical building/locatio
55
What are examples of assets you would value using Profits Method?
Hotels/Schools/Hospitals/Pubs/Care Homes
56
For the profits method if possible what are the expectations for business accounts?
Audited and accurate accounts for 3 years
57
How would you value using the profits method for a new business?
Use estimates and business plan and then would adjust for maturity of the business and exceptional expenditure
58
What are the steps to valuing using the profits method?
1. Fair Maintainable Turnover FMT (Income recieved based on historic/evidence and based on reasonanbly efficient operator) - costs and purchases = Fair Maintainable Operating Profit (FMOP) / Ebitda
2. Capitalise by yield (YP Multiplier)
3. Cross check with comps/key rates
59
How can the profits method be expressed?
EBITDA (earnings before interest taxation, depreciation and ammortisation) / FMOP
60
What RICS guidance is there for the Residual Method of Valuaton?
RICS Professional Standard: Valuation of Development Property 2019
61
According to RICS Professional Standard Valuation of Development Property 2019 a residual site valuation is what>
The Market Value of a site based on Market Inputs
(Must be Market led)
62
According to RICS Professional Standard Valuation of Development Property 2019 what are the two ways you can value land in course of development?
* Valuer can determine value by adding value of land plus cost expended
* Completed development minus costs remaining to be expended
63
When calculating the NDV for a red book residual valuation what are you calculating and when?
The market value of completed proposed development at valuation date
Use present values and current market conditions / Comparables
64
What is the definition of GDV?
The market value of the proposed completed development on the date of valuation in the market conditions
on that date.
65
When calculating the NDV for a red book residual valuation what yield is used?
ARY
66
How do you get from GDV to NDV?
Deduct purchaser costs
67
What are the steps to the residual Method of valuation?
1. Calculate NDV
2. Establish Total development Costs
3. Finance Costs
4. Developers Profit
5. Land Value
68
Within Total Development Costs what is included?
* Planning costs( s.106/CIL/planning app/consultant)
* build costs (BCIS/Client info/Cost consultant/PM)
* Professional fees + VAT (c.10-15% Construction - architect etc)
* Contingency (5-10% construction)
* Marketing costs
* sales/legal fees (c.1% GDV and lettign fees 10% rent)
* Other costs- RoL
69
How should you determine finance costs?
Choice of interest include consideration of rate at which developer can borrow money and also consider BoE base rate plus premium
c.3-4% premium for dev costs
70
What three elements of developments need financing?
1. Site Purchase (inc purchaser's costs) - compound interest on straight line for length of development period
2. Total construction costs - S curve basis to reflect when monies are drawn down. Typically smaller uperfont costs and more costs incurred when project halfway through.
3. Holding costs - until disposal of scheme and it covers voids (sc/empty rates/interest charges) compunds on a straight line basis.
71
How should you calculate developer profit and what is typical projected returns?
Either % of GDV or costs
15-20%
72
What determines the required profit returns?
Lower risk - lower returns required
If has planning / pre-let / pre-sold
Recently profit required returns risen due to market conditons
73
What are the two types of funding methods in development appraisal?
1. Debt finance - lending bank/institution
2. Equity - own money/selling shares/JV
74
What are typical lending financing terms?
60% LTV
Changes in challenging markets
75
What is the difference between Senior debt and mezzanine debt?
Senior debt - 1st level of borrowing has precedence
Mezzanine - additional funding over normal LTV
76
What is an overage (clawback) clause?
Agreement between vendor/landowner and borrower where extra profit is shared in pre-agreed formula
77
What are the types of sensitivity analysis?
Simple sensitivity - key variables (GDV, yield, Build cost)
Scenario analysis - changing scenarios (timing/cost/phasing)
Monte Carlo - probability theory
78
What is the difference between a residual valuation and a development appraisal?
Development appraisal typically used to determine profit level to assess viability whereas residual valuations determine market value using market inputs.
Dev appraisal use client provided inputs
Residual Valuation use market inputs
79
Concerns/Challenges of Residual Valuations?
* Sensitive to small changes
* Based on only valuation date
* importance of accurate information and outputs
80
What are the typical build costs for offices?
c.£200 - £400psf
81
When sould the Depreciated Replacement Cost: DRC (Contractor methods) be used and for what properties?
Last resort and lack of/no direct market evidence
Specialist properties (schools/docks)
Owner occupied properties
82
Depreciated Replacement Costs (Contractor's method) what is the purpose ffor these valuations typically?
Accounts purposes for owner occupied properties
83
Wht is the DRC methodology and the two steps?
1. Value of land in exisitng use assume planning permission
2. Plus cost of replacing the asset to a modern equivalent asset (plus fees) using BCIS and minus discount for depreciation, obsolscence and deterioriation (physical, functional, economic obscolescence)
84
What are examples of physical, functional and economic obsoloesence?
Physical (wear and tear)
Functional (design/spec no longer fulfills function)
Economic (changing market conditions)
85
Is the DRC method red book compliant?
Not red book compliant for secured lending
For financial reporting purposes can be
86
Can DRC be used for MV valuations?
Yes - used for MV of specialist property
87
When reporting a DRC what should a valuer state?
Market value on cessation of business would be materially lower.
Statement on MV for any readily identifiable alternative use
88
What is the Professional Standard on DRc?
RICS Professional Standard on DRC method of valuation for financial reporting 2018
89
What is the governing RICS Valuation document?
RICS Valuation - Global Standards 2024 (Red BooK Global)
90
When was the Red Book updated and when did it become available and what does it now align with?
Updated Dec-24/ Effective Jan-25
International Valuation Standards (IVS 2025)
91
What is the purpose of the Red Book Global?
* Consistency, accuracy, objectivity, transparency
* Builds public confidence and trust in valuation
* Applies International standards/IVS
* Follows ROC
* Global standards
* Seld-regulates professiona
* consitency
* cleat structure
* easy to follow
92
What is the Red Book?
Red Book provides procedural guidance and requirements for Firms and Members
93
Why should valuers abide by the red book?
Provides guidance, guides against negligence
Mandatory principles to follow
94
When is a Red Book Valuation required?
Providing a formal opinion of value ad can be relied upon by instructing party.
95
What are the key changes to the document in the new edition?
1. VPS 5: New content on valuation models (ensure suitable for purpose)
2. ESG reporting: Built in to ToE, inspection, reporting ('significant ESG factors used and considered in TOE')
3. Reference to new technologies (PS1.3 use of AI in models)
4. Renforcement for need for robust audit trail
5. Revised ordering of VPS to align with IVS
Old VPS 2 becomes VPS 4
Old VPS 3 becomes VPS 6
Old VPS 4 becomes VPS 2
Old VPS 5 becomes VPS 3
96
What are the 6 parts of the Red Book Global Standards 2025?
1. Introdcution
2. Glossary
3. Professional Standards (mandatory - 2 PS)
4. Professional Technical and Performance Standards (mandatory - 6)
5. Valuation Practice Guidance Application (advisory - 11)
6. copy of International Valuation Standards
97
# Mandatory
What are the the two Professional Standards, PS 1 / PS 2?
* PS 1 - Complaince with standards where written valuation provided
* PS2 - Ethics, Competency, objectivity and disclosures
98
# Mandatory
What are the 6 Valuation Technical and Performance Standards?
VPS 1 - TOE
VPS 2 - Base of value, assumptions, special assumptions
VPS 3 - Valuation approaches and methods
VPS 4 - Inspection, investigation and records
VPS 5 - Valuation models
VPS 6 - Valuation reports
99
Name 3 key VPGAs?
VPGA 1- Valuation for financial reporting
VPGA 2 - Valuation for secured lending
VGPA 5 - Machinery and Plant
VGPA 8 - Valuations of real property interests (key for inspection)
VPGA 11 - Relationship with Auditor
100
Which VPGA of the red book should you have regard to when inspecting?
VGPA 8 - Real Property Interests
101
How many VPGAs are there and are there?
11
102
# EASIN - Part 1 PS
Valuation PS1 (part 3 RBG) says that there are 5 exceptions when a valuation doesnt have to be red book?
E - expert witness (acting as expert)
A - agency/brokerage (acqusition/disposal agency service except in purchase report)
S - Statuatory purposes
I - Internal Purposes (valuation for internal purpose and contract excludes valuer liability)
N - Negotiation/litigation (advice for negotiation/litigation)
103
What is the new PS 1.3 and 1.4?
1.3 - Automated Valuation Models:
Models must be subject to application and valuers professional judgement
1.4 - Use of AI not prohibited but subject to professional judgement, TOE, all ethical, legal, red book matters
104
How should suveyors follow PS 2 - Ethics, competency, objectivity and disclosure?
* Act in line with ROC when undertaking valuations
* Independance/objectivity - apply professional scepticism when reviewing data/info before rely on it
* ToE - Understand client requirements and comply with terms
105
What does objectivity entail in PS2?
* Independance, objectivty, identification and management of COI
* Valuer/Firm act objectively, independantly, not influenced by any situation which threatens objectivity
* apply professional scepticism when reviewing information and data before relying on it
106
What does the disclosure part of objectivity in PS2 entail?
TOE - understand client requirements and comply with TOE
Deomonstrate Competence
107
# VPS - Valuation Technical and Performance Standards
VPS 1:ToE
When, who and how must ToE be signed?
* Signed prior to instruction
* Client must sign
* In writing
108
In a valuation instruction ToE what should be included?
1. Identification & status of responsible valuer
2. identification of client(s)
3. Asset/liability valued
4. valuation currency
5. purpose of valuation
6. Basis of value
7. valuation date
8. nature/extent of valuer works (inc investigations)
9. assumptions/special assumptions
10. format of report
11. restrictions for use, distribution and publication
12. Confirmation in accordance with RBG/IVS
13. Fee basis
14. CHP - copy on request
15. Statement: subject to monitoring/compliance by RICS
16. Any limitations on liability agreed
17. NEW - consideration of significant ESG Factors
109
# VPS 2 Bases of Value, assumptions and special assumptions
Who decides the bases of value and how?
Valuer decides
Appropriate/consistent with purpose of valuation
110
What is VPS 2?
Bases of value, assumptions and special assumptions
111
According to Red-Book is it acceptable to undertake a 'Desk-top Valuation'?
Yes - but must be agreed
prior to reporting.
112
What is the definition of 'Market Rent'?
The estimated amount for which an interest in real property should be leased on the valuation date between a willing lessor and willing lessee, on appropriate lease terms, in an arm's length transaction, after proper marketing and where parties had acted knowledably, prudently and without compulsion.
113
What is the difference between an ERV and MR?
ERV takes into account further considerations about the property, such as specific lease terms and building is occupied.
MR assumes vacant possession and is the amount of rent anticipated for use of the property.
114
What is the definition of Market Value?
Is the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in arm's length transaction, after proper marketing and where both parties acted knowledgably, prudently, and without compulsion
115
# IFRS 13
What is the definition of Fair Value?
The price that would be recieved to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date
116
Within the IFRS what bases of value is required?
Fair Value
117
Within IFRS 13 - does it outline that MV and FV are generally consistent or generally different?
Generally Consistent - and most practical purposes the concept is consistent with MV
118
What is the investment value?
Value of an asset to a particular owner or prospective owner for individual / operational objectives
119
WHat is Equitable value?
Estimated price for the transfer of an asset or liability betwen knowledgable and willing parties that reflects their respective interests of those parties.
120
What is the Liquidation value?
Amount would be reliased when assets sold from liquidation sale, where seller compelled to sale at speicifc date
121
What is the definition of marriage value (synergistic value)?
The additional element of value created by the combination of two or more assets/ interests (physical or tenurial) as where combined value is more than the sum of seperate values.
122
How is marriage value split?
Usually 50/50 split or
divided it pro-rata based on the value of individual assets
123
What is the definition of Hope Value?
Hope value is the value arising from expectation of future circumstances affecting property that may change, e.g planning permission granted.
124
What is the definition of special value and the definition of a special purchaser?
Special value: An amount that reflects particular attributes of an asset that are only valuable to a special purchaser
Special purchaser: particular buyer whom a particular asset has special value because of advantages arising from its ownership that would not be available to other buyers in the market
125
What could special value arise fromand give me an example?
Physical, functional, economic association of the property with another property
When transaction not arms length
e.g. Tenant purchasing freehold
126
Is hope value a red book term and how does it differ from existing use value?
No
EUV - value as of today
127
What is an assumption with RBG?
Assumptions are made where it is reasonable for the valuer to accpet something is true without need for specific investigation/verification.
Must be reasonable/relevant and with regard to valuation purpose
128
What is a special assumptions?
An assumption that either assumes facts that differ from the actual facts or assumption that would not be made by a typical market participant in a transaction on valuation date.
129
In order for a valuer to make a special asusmption within RB Valuation what do they need to do?
Stated in TOE
Agreed and confirmed by client in writing at instruction and in the valuation report
130
Special assumptions can only be made if they can be?
Reasonably regarded as realistic, relevant, and valid for valuation
131
What would be standard practice to start making void assumptions?
Within 5 years - sub 5 years of lease
132
VPS 3 - Valuation approaches and Methods:
Who is responsible for selecting the right valuation approach/method?
Valuer
133
VPS 3 - Valuation approaches and Methods:
When a valuer decides on method/approach must have regard to?
* Nature of asset
* Purpose, intended use and context
* Statuatory or mandatory requirements applicable
134
Why is it important to use correct approach?
Can result in misleading or wrong valuations
135
VPS 4 Inspections, Investigations and records
Why valuers carry out investigations and inspections and what must they keep on file?
Inspections conducted to verfiy information relied upon for a valuation to ensure the information is professionally adequate for valuation purpose.
Proper records of investigation/inspections - to maintain a proper audit trail (clear/quality/factual notes)
136
What are the new requirements for valuers when undertaking inspections?
* Valuers must request and collect appropriate sustainability and ESG data
* Details - clearly recorded/audited in appropriate business format
137
Nathan Probert - Is it acceptable to undertake a valuation without a re-inspection?
Yes BUT - Only undertaken when valuer is satisfied no material changes have occured since last time
must be confirmed in TOE/val report
138
Nathan Probert - How would you confirm if no material changes have occured since the last valuation?
* Confirm with client no material change
* confirmed in writing
* Auditing purposes - save information on file
* Refer to Red Book - VPS 4 Inspections, investigations and records
139
If on inspection there are limitations/restrictions where should a valuer record this?
ToE and report
140
What is a restricted information valuation and can they be Red Book Valuations?
Desktop valuations where no inspection undertaken.
Can be for Red Book Valuations unless one of the five exceptions.
141
When a valuer is instructed to undertake a valuation on the basis of restricted information or without a physical inspection the valuer should consider what 4 factors?
1. Nature of restictions agreed in TOE
2. Possible valuation implications of restriction confirmed in writing before valuation
3. Consider if restriction reasonable with regard to purpose of valuation
4. Restriction referred to in report
142
VPS Valuation Models (New in 2024 Edition)
According to RICS guidance prior to undertaking valuations, valuers must check models are:
* Models must be suitable for valuation using professional judgement
* tested to ensure accuracy
* Valuer must understand how it works
* Must have documentation to descrtibe why model selected by valuer
143
VPS Valuation Models must consider four core factors
Accurate
Completeness
Timeliness
Transparency
144
VPS 5 Valuation Models
What are examples of software which conduct valuation models?
Argus/Kell
145
VPS 6 Valuation Reports
(IV1 1103)
What is set out within a valuation report?
1. Identification and status of responsible Valuer
2. Identification of client (intended user)
3. Purpose of valuation
4. Identification of the asset/iability
5. Basis of value
6. Valuation date
7. Extent of investigation
8. Nature and sources of info relied upon
9. Assumptions/Special Assumptions
10. Restrictions on use, distribution, publication
11. Confirmation in line with IVS/RBG
12. Valuation approach and reasoning
13. Amount of the valuation
14. Date of report
15. Commentary on any material valuation uncertainity (MVU)
16. Statement setting out limitations on liaiblity
17. NEW - Significant ESG factors
146
What is the key difference between TOE and Valuation Report?
TOE includes Fee basis and CHP
Report includes valuation and approach and amount
147
VPS 6:
Valuation reports must draw attention to what?
Issues affecting degree of certainity
148
Can you give a preliminary (draft) valuation and if so what are conditions?
Yes it can be given but:
- must be marked as draft
- for internal purposes only
- cant be relied upon
- cant be published/disclosed
- state draft and subject to completion of final report
- can be discussed with cleint but valuer must remain objective and not influenced by client
- any changes to draft must be noted on file with reasons provided
- any additonal info supplied by client post the draft must be stated
149
What is part 5 of the RBG?
VPGA
Valuation Practical Guidance Application
150
Valuation Guidance Practice Application (VGPA)
Are the mandatory or advisory?
Advisory
151
How many VPGAs are there?
11
152
What is VPGA 1?
Valuation for Financial Reporting
153
For valuations for financial reporting, what it the basis of value?
Fair value for all IFRS accounts
(should produce same result as MV as based on same concept)
154
In Valuations for financial reporting are special assumptions acceptable?
Special assumptions are not formally appropriate as assets/liabilities should be valued on 'as is' basis on reporting date
155
When undertaking valuations for financial reporting the valuer must be aware of the purpose of the valaution which could be for what?
Inclusion on balance sheet/internal purposes/measurment of asset
156
When undertaking valuations for financial reporting purposes is it appropriate to make assumption asset will continue to be used as part of business?
Yes
157
When undertaking regular valuations for financial reporting purposes you must report what bases of value and when?
Current fair value at each reporting stage
158
What are the additional requirements for financial reporting valuation purposes which mustbe disclosed in TOE/Report?
* Confirmation if the valuation will be published in a financial report (requires a statement in valaution report and valuer approva use in reportl)
* Any assumptions made are material - disclosed
159
# CIT
VGPA 2 - Valuation for Secured Lending:
Prior to instruction for secure ledning what must valuer check?
Independance
Objectivity
COI
Disclose previous, current, anticipated involvement with prospective borrower or property
160
When checking for a COI what does previous involvement refer to?
Around 2 years but can be longer
depends on nature/extent of involvment
161
What is an example where a valuer may be conflicted?
Longstand professional relationship with owner/borrower
Finanical interest in property
162
If there is a potential conflict, what should the valuer do?
Valuers responsibility to decide whether or not to accept instruction having regard to principles of RoC
163
If there is agreement the valuer can manage the conflcit where must this be included?
TOE / Valuation Report
164
IN VPGA 2 - Valuation for secured lending what is the bases of value?
Market Value
165
In VPGA 2 - Valuation for secured lending is it acceptable to use special assumptions and if so how is this managed?
Yes - special assumptions must be agreed in writing with client in advance
e.g. new letting/consent granted
166
Nathan Probert - what valuations are special assumptions permitted?
Market Value - valuations
167
WHat is VPGA 8 and what is included within it?
Valuation of Real Property Interests
Covers:
Investigations and inspections
emphasis on ESG and environmental constraints and need to consider direct valuation factors
168
What are the different matters affecting value of a property found on inspections?
1. Charachteristics of locality and surrounding area
2. Charachteristics of property
3. Charachteristic of site
(emphasis on ESG/Sustainability)
169
Given that ESG is a big focus now when reporting on inspections for valuers what are some typical ESG considerations?
Environmental:
- Type of energy
- PV panels
- EPCs
- Materials used
Social:
- Location
- mobility
- building access
Governance:
- Safety
- DEI
- DDA compliant
- Planning
170
What is the RICS documentation that guides valuers regarding ESG and what are the key principles?
RICS Professional Standard: Sustainability & ESG in Commercial Property Valuation and Strategic Advice 2026 (NEW version)
Guidance on identification, assessment and impact on sustainability and ESG issues for commercial property valuations
Major ESG considerations reported in TOE/Report
Sustainability charachteristics should be considered when analysing comps and assessing impact on value
171
If the valuer can't investigate ESG what should they do?
Require additional expertise of specialists
172
What is VGPA 10?
Matters which may give rise to material valuation uncertainity
173
VPGA 10 - matters which may give rise to material valuation uncertainity
What should valuers do with issues relating to material uncertainity?
Valuer must draw attention to any matters of material uncertainty around the valuation
Valuations cant be misleading!!
174
NEW VPGA 11 - Relationship with auditors
What is within the guidance note for relationship with auditors?
Guidance on sharing information with auditors
Keep detailed records
175
What RICS guidance is there specifically for UK Valuations?
RICS Valuations - Global Standards UK National Supplement 2023
176
What is in part 6 of the red book and what does it set out?
IVS 2017
General standards - TOE, bases/methods of valuations, reporting standards
Asset standards - requirements relating to specific types of assets
177
What is the relationship between the RBG and UK National Supplement?
UK Red Book Global National Supplement augments the Red Book Global not substitutes it!
178
What is the National UK Supplement? And when was it published?
Published 2018 (latest edn 2023)
Specific requirements for members on application of Red Book to valuations undertaken subject to UK Jurisdiction
179
Is most of the advice in the National Supplement advisory or mandatory?
Most advisory
180
What is the structure of the UK National Supplement?
Part 1 - Introduction
Part 2 - Glossary
Part 3 - UK Professional Standard (Mandatory)
Part 4- UK Valuation Technical and Performance Standards (UK VPS) - Mandatory
Part 5 - UK Valuation Practice Guidance Application (Advisory)
181
What is UK PS 1?
Compliance with valuation standards UK Jurisdiction
182
What is UK VPS 1,2,3?
UK VPS 1 - TOE/reporting -red Book Compliance
UK VPS 2 - TOE Scotland
UK VPS 3 - Regulated Purpose Valuations
183
IS UK Supplement PS 1 mandatory and what does it say?
Mandatory:
Must comply with UK law when providing valuation services and be alert to regulations such as Rules and Codes
184
UK VPS 3 - Regulated purpose valuations:
What are regulated purpose valuations?
Valuations relied upon by 3rd parties who havent commissioned valuation
185
# FSMCU
What are the 5 purposes of regulated purpose valuations (valuations relied on by 3rd parties)
1. Financial reporting (compnay accounts)
2. Stock Exchange listings
3. Merger/Takeover
4. Collective investment scheme
5. Unregulated collectvie investment schemes/Unregulated Property Unit Trust
186
When a property is purchased or introductory fee is accepted by the firm can it be valued for regulated purpose valuation?
Cant be valued for 12 months for valaution regulation purpose - after it can be
187
# Rotations
What is the UK VPS 3.3?
Valuation Rotation Policy
188
Under VP 3.3 it states responsible valuer, what is this?
Responsible Valuer - Named Valuer who accepts responsibility for the valuation and is appropriately qualified
189
VP3.3:
In the valuation rotation policy what is the max period before rotation of a firm and a valuer?
And what is the max period of a single enagagement period?
Max period 10 years before rotation of firm
Max period 5 years before rotation of valuer
Max period of single engagement period is 5 years
190
Where should responsible valuer confirm in TOE that a rotation policy is in place at their firm if valuation is for regulated purpose?
TOE
191
Are secured lending valuations regulated purpose valuations?
NO- can't be relied upon by 3rd parties
192
Part 3:
UK VPGA - How many are there?
17
193
What are the UK VPGA 1 and 2?
VPGA 1 - Valuation for financial reporting
VPGA 2 - Valuation for other regulated purposes
VGPA 9 - Relationship with auditors
VGPA 10 - Valuation for Commercial Secured Lending Purposes
194
In line with Valuation Rotation Policy what is the minimum break after a rotation?
Min 3-year break
195
What is UK VPS 3.4?
TOE and Instruction
Valuer must ask client in writing if instruction has been made with approval of non-exec director, independant chair, audit committee, corporate compliance officer. Client response included in final instruction / TOE / valuation report.
196
Within UK VPGA 1 - Valuation for financial reporting, what two financial reporting frameworks accpeted in the UK?
IFRS and UK GAAP (General Accepted Accounting Principle)
IFRS more common- globally recognised accounting rules
197
What bases of value do IFRS and UK GAAP both adopt?
Fair Value - defined slighlty differently in each but concept is same
198
Would you expect fair value and market value to produce the same answer?
Yes - based on same concept
199
What is the difference between market value and fair value?
Market value is based on open market price and fair value is more specific price between two orderly parties.
Market value is more volatile
200
When undertaking valuations for financial reporting purposes how should you treat assumptions? and can you use special assumptions?
Acceptable but must disclose significant assumptions
can't use special assumptions
201
Valuer must ensure they are what prior to undertaking valuation?
Objective/Independant/Competent
202
# Sufficient
What is considered regular valuations according to UK VGPA 1?
Flexibility over regularity must be 'sufficiently regular'
203
Under UK VPGA what bases of value is used for Valuation for financial reporting and what stages?
Fair value at each reporting stage
204
What is UK VPGA 10?
Valuation for commercial secured lending
205
Whose responsibility is it to take financial decision on suitability of asset for loan security?
Lender is responsible as financial decision involves factors otherr than property being taken into consideration
206
What else is included in a loan security valuation?
The valuers asessment on the suitability of the loan
207
# CBRE
What is the case law which demonstrates the margin of error of valuations can be varied depending on complexity?
KS Lincoln & Others v CBRE 2010 - Valuation of 4 hotels 2005: appropriate margin may be 5% for standard residential, 10% for one-off commerical and 15% for exceptional features
208
What is an acceptable margin of error?
10-15% could be 5% depends
209
What is the RICS Peter Periera Review of Investment Valuations 2021?
Independant Review of investment valuations 2021
Commissioned by Standards and Regulation Board as market changing
S&R board accepted all 13 recommendations and incorporated into RBG
210
What were some of Peter Perieras recommendations?
Rotation of valuers
Valuation compliance officer
DCF as princiapal model in property investment
211
What was the aim of Peter Perieras review?
Increasing trust in profession and confidence that client will have quality of the valuation process
All values reported fairly for public interest
212
What is the current rate of SDLT for commerical property?
Below £150k - 0%
Over £150k - £250,000 - 2%
Above £250,000 - 5%
213
Can you tell me some of the changes to SDLT in recent April budget?
Since 2025 budget increases:
If residential asset is 2nd home or buy-to-let additional 5% charged on-top of standard rate
Nil residential bracket reduced to £125,000
214
Is there SDLT relief for first time buyers
Yes 0% SDLT on homes upto £300,000
215
Is there SDLT in Wales/Scotland?
No- they have other systems
216
DO you have to pay SDLT on grant of new leases?
Yes
217
What is a surrnder and renewal valuation?
When landlord and tenant want to surrender lease and simultaneously grant new lease on different terms usually longer.
Calculate premium to reflect change in value of leasehold interest
Premium = value before - value after
218
Can you value on behalf of charities and what act must you follow?
Yes- must confirm Charity had obtained best terms for transaction
Charities Act 2022
New act simplifies the requirements for the report and simplifies requirements forthe reports
219
When valuing long leasehold interests how do you get your net rental income and then market value?
Rent recieved - ground rent = net rent
Capitalise net rent by remaining lenght of lease - MV of LLH
220
What should have a keener yield LLH or FH?
FH
discount LLH yield ro reflect adddiutonal risk as it is a wasting asset
221
What is a building cost reinstatement valuation and when are these used?
Cost of reinstatement of the building without a profit
Used for building insurance purposes
222
Is a replacement cost valuation red book global compliant?
Not red book global compliant
223
What is a premium and give me an example when this could arise?
Capital payment made by one part to another
(e.g. money for fixtures and fittings paid by tenant)
224
What is a WAULT and what is it weighted by?
Weighted Average Unexpired Lease Term remaining across the asset and it is weighted by contractred rent.
225
How does a WAULT impact Yield?
Longer WAULT less risky - premium yield
226
How do you work out the WAULT backhandedly?
Calculate total rent until end of lease terms across asset and divide it by the sum of the current annual rent for each tenant.
Tenant A - £100,000 5 years
Tenant B - 150,000 7 years
Tenant C - £200,000 3 years
Total weighted rent: £100,000 x 5 + 150,000 x 7 + 200,000 x 3 = £2,150,000
Total Annual rent: £100,000 + £150,000 + £200,000= £450,000
WAULT = £2,150,000/£450,000 = 4.78 years
227
What is the difference between Headline and Net Effective Rent?
How is NER calculated?
Headline take away incentive = NER
Calculated: Straight line basis until next lease event
228
What is the norm if there is a 3 month fitting out period when tenant signs a lease?
Normally fitting out period of 3 months deducted from the rent free period (3m fit out treated as rent free - reducing total rent payable over lease term)
229
What is true market rent?
NER
230
What should you base comparables evidence from NER/Headline?
NER - True Market Rent
231
What is a ransom strip land?
Piece of land which controls access to another piece of land
232
According to upper tribunal what does it suggest the ransom strip value could be?
Upper tribunal suggests the ransom strip value could be between 15-50% of the development value unlocked by inclusion of ransom strip within propsoed development shceme
Tribunal assesses on case by case basis
Case law - Stokes v Cambridge (1961)- value of 1/3 of uplift in development site value was awarded to the owner of the ransom strip
233
Is it common valuation practice to deduct likely cost of purchase from gross market value to get net value?
Yes as the purchaser will have to pay this
234
If you didnt have purchaser costs, who would it be beneficial for?
Buyer doesnt impact seller
235
What is typical purchaser's costs?
SDLT usually - 5%
Agent fees c.1% + VAT
Solicitor fee c.0.5% + VAT
6.8%
236
What is purchaser's costs for SPVs?
Offshore: no SDLT - 1.8% PC's
Uk SPV: 0.5% SDLT / 1.8% agent/legal fees = 2.3% PC's
237
What is a party wall? and what year was party wall act?
A wall is a 'patrty wall' if it stands astride the boundary of land belonging to 2 different owners
Party wall act 1996- framework for resolving disputes
if want to carry out work to party wall - must inform adjoining owners
238
WHat is the RICS Professional Standard for Rights of Light?
RICS Professional Standard Rights of Light 2024
239
After how long does a right to light of a building arise?
20 years of uninterrupted enjoyment of light without consent of 3rd party by way of pescriptive right
240
If right to light is infringed what can be granted and awarded?
Injunction and damages awarded
Case HKRUK II LTd (Highcross) v Hearny 2011 injunction to reduce scale of Toronto Square Leeds
241
Is zoning a valuation technique or methodology?
Technique - used for comparison of retail
242
# HUT
What is the HUT principle of Zoning?
Rental value of property reduces further away from the street
H- Halving bak principle (6.1m zones)
U - Unit of comparison
T - Technique not method
243
What are some general rules of zoning?
* Make allownace for quantum
* Return frontages usually 10% uplift
*Mirror zoning for shop with two main frontages
* Basement usually A/10
244
What is the Registered Valuer scheme and what do you need to be able to sign up?
RICS Regulatory Monitoring Scheme 2011: for all valuers carrying out RB Valuations
* Aim improve quality of valuation professional standards and self-regulation
* Must undertake Valuation L3 (some exceptions)
* Reister with annual fee and provide info on type/purpose/number of vals undertaken
245
How do you become a registered valuer?
Registered Valuation scheme
246
Level 1:
As you are familiar with RBG what are the recent changes?
* ESG reporting- significant ESG factors added into report / TOE
* New Valuation Model VPS 5
* Guidance on AI - PS1.3 (not prohibited but must be agreed in TOE)
* Restructred to align with IVS
* Reinforcement around audting and compliace
247
Level 1:
What is the structure of the RBG?
1. Introduction
2. Glossary
3. PS - mandatory
4. VPS (Valuation Technial and Performance Standards) - mandatory
5. VGPA - (Valuation Practice Guidance Application) - Advisory
6. IVS
248
Level 1:
In the Fund Valuation team what bases of value did you use and why?
Fair value at each stage of reporting
As per RICS RBG guidance:
VGPA 1 - Valuation for financial reporting
249
Level 1:
What are the five methods of valuation?
Investment
Comparable
Profits
Depreciated Replacement Cost
Residual
250
How do you have regard for RICS Professional Standard Comparable Evidence In Real Estate Valuations 2019?
Utilise hierachy of evidence:
* Cat A direct comparables
* Cat b - general market data
* Cat c - Other sources
Understand the if no comparable evidence - valuations are expected to still be undertaken
251
What are the different types of leasing evidence?
Open market, lease review, sale and leaseback, RR
252
How do you value office and industrial assets and what are the value drivers?
Fair value using the investment method assuming they are income prodcuing
Offices value drivers:
* Specification
* Quality of accomodation
* amenity
* connectivity
* ESG - Sustainability credentials
* quality of tenant
* surrounding amenity
Industrial:
* Location
* road connectivity
* ESG - sustainability
* yard depth
* site cover
* Eaves heights
* loading bays
* office content
* specification
253
What is the difference in value drivers for distribution vs multi let industrial?
Distribution:
* Road connectivity
* Uk Coverage (Distribution Centre)
Multi-let:
* Last mile-logistics
* Access into cities/town and hubs
254
Why has industrial asset performed well?
* High occupier demand
* Increase in e-commerce - imortant for last mile logistics
* Shopping and consumer trends - online sales
* BREXIT
255
Level 2 Poyle:
Talk me through this example high level?
* Inspected unit & noted factors impacting value
* Collected comparable evidence
* Concluded MR higher than passing
* MR effective at next rent review (next year)
* Yield held - evidence/sentiment consistent
* Term and Reversion Method = Fair Value
256
Level 2: Single-let Insutrial - Poyle (Poyle Central)
What was the basis of value?
Fair value:
Price that an asset would be sold or liability transferred at the measurement date in an orderly transaction between market participants.
257
Talk to me high level about your L2 Ealing Office Example Valuation?
* Two new lettings.
* Strong evidence for MR for refurbished units in office
* Increased MR on other refurbished units / maintained MR for non-refurbished
* Held yield based on evidence/agents
* Value increased – higher MR for refurbished space
258
Talk to me high level about your valuation Level 3
Industrial Estate, West Drayton example?
* Multiple new leases signed at higher rents
* Reviewed comparable evidence
- Increased MR for comparable units to recent lettings
- Removed voids and adjusted rents for new lettings
- Held yield for MLI – despite investment volumes below 5-year average (verified with agent)
- Advised increase in value – driven by AM and new MR, not stronger investor sentiment
259
Talk to me high level about your valuation Level 3
Industrial Unit, Northolt example?
* At valuation date unit vacant
* Signed agreement (AFL) between incoming tenant & landlord
* Conditional on refurbishment
* Client procured contractors for refurbishment
* I verified costs with BCIS/ Cost consultancy
- Advised refurb cost of £40psf input as capex
- Keener yield – strong covenant from Experian check
- Reduced void period - lease start date sooner than previous assumption
260
Level 2: Single-let Insutrial - Poyle (Poyle Central)
What did you note that would impact value thatyou found on inspection ?
* Layout and specification
* condition of unit
* surrounding amenity
* site coverage
* yard space
* office content/condition
* connectivity
* Building condition/specification
* ESG factors
* number of loading bays
* eaves height
* noted any agents boards
261
Level 2: Single-let Insutrial - Poyle (Poyle Central)
How did you determine MR and what is MR?
Used hierachy of evidence: similair assets, location, quality, size, recent, open market lettings
MR:
The estimated amount at which an interest in real property should be leased at the valuation date between a willing lessor and willing lessee, on apprpriate lease terms, in an arms length transaction, after proper marketing and where both parties acted knowledably, prudently and without compulsion.
262
Level 2: Single-let Insutrial - Poyle (Poyle Central)
How did you assess comparable evidence? What is reversionary meaning?
Used hierachy of evidence and created a comparables matrix and adjusted for subject if needbe
Reversionary is when the passing rent is below the market rent
263
Level 2: Single-let Insutrial - Poyle (Poyle Central)
How did you review the investment evidence and investment market sentiment?
Investment evidence:
comparable transaction- hierarchy of evidence
Investment sentiment:
- Investment agents/local agents
- understanding capital available
- understanding under-bidders/market participation
264
Level 2: Single-let Insutrial - Poyle (Poyle Central)
How did you establish fair value using the term and reversion method?
Capitalised the passing rent (term) until next RR
Then capitalised the reversioanry rent from the RR into perp after being deferred
Capitalised using an equivalent yield as dearth of specific yield evidence. The EY factors in the additonal risk of the reversion.
265
Level 2: Office - Ealing (Ealing Gateway)
WHy did the recent lettings provide strong evidence on which to base MR from?
Hierachy of evidence:
EVidence from within the subject is CAT A - if have full details and can analyse
266
Level 2: Office - Ealing (Ealing Gateway)
Why did you have a split in MR in the property for refurbished v unrefurbished?
Using the evidence and market evidnece - demonstrated more demand for refurbished floor space and higher achieved rents wihtin subject and wider office ealing market.
Relfects markert evidence for higher quality space and lower quality space at disocunt
Exisitng rents was not evidence to move on in the market evidence
Differential of £5psf for refurbished vs unrefurbished
267
Level 2: Office - Ealing (Ealing Gateway)
Why did you keep yield smae as previous month?
* Limited transactional evidence
* Evidence showed no movement in yields - and in line with our yield adopted
* Market sentiment had not shifted same level from local agents perspective
Despite two new leases - still not enough to move capitalisation rate on
268
Level 2: Office - Ealing (Ealing Gateway)
Why would the value increase due to the newly established MR?
and how much by?
Reversion increases pushes the amount being capitalised value up.
c.£250k
269
Level 2: Office - Ealing (Ealing Gateway)
What is the office market like in Ealing?
Fairly challenging - not considered prime
Well connected with Ealing Elizabeth Line
270
Level 3: Industrial Unit Northolt (Hallmark House)
What was the signed agreement between the landlord and an incoming tenant?
and were you valuing it as vacant or stabilised?
A lease - with pre-agreement for refurbishment of the unit to be undertaken my the landlord
Valuing it based on signed lease agreement terms
271
Level 3: Industrial Unit Northolt (Hallmark House)
Had the client not had a signed agreement in place but still wanted a value - what would you have done?
TOE adjusted first and can't have been for accounting purposes
272
Level 3: Industrial Unit Northolt (Hallmark House)
What were the conditions of the lease?
In the conditionality of the lease what type of refurbishment was required?
Conditions:
- Scope and cost of works agreed
- Lease start date and rent commencement tied to PC of refurbishment
Refubishment included:
- Redecoration to the insides
- LED lighting upgrades
- New flooring
- Office space refreshed
- Overspray of cladding
273
Level 3: Industrial Unit Northolt (Hallmark House)
How did you verify these costs using cost consultancy team and BCIS Guidance and keeping in line with RICS RBG?
Showed internal specialist team with competence/experience required to check:
- Figures were reasonable, supportable and market standard assumptions
- Ensured were evidence-based and supported rationale for the price
- Complied with RBG - as ensured all cost plans were audited and recorded and used competent team with neccessary skills
- BCIS guidance - used BCIS refubsihment rates for industrial units, matching scope of works and checked unit rates in GIA. Made adjustments where necessary
274
Level 3: Industrial Unit Northolt (Hallmark House)
What was your advice on this?
* The lease agreement had a positive impact on fair value
* Sharper capitalisation yield as incoming tenant strong experian credit rating
* Reduced void period as lease start date was sooner than our assumptions
* Input costs in valuation as cpaex - £40psf
275
Level 3: Industrial Unit Northolt (Hallmark House)
How would you include the refurbishment cost in the valuation?
I input it in as capital expenditure and followed the cost plan provided so installments of monies were drawn out on exact timings in the valuation
Negative imapct on value
276
Level 3: Industrial Unit Northolt (Hallmark House)
How did you use Experian checks to determine the client had a strong covenant rating?
Followed the Experian Report procedure:
1.Logged in with account
2. Input Company name and number
3. Selected report type
4. submitted order
5. reviewed and downloaded
It gave me a Delphi Score of the commerical viability of the business - ranked out of 100. Scored above 90 - which is considered excellent - shows low risk of failing
277
NP - Level 3: Industrial Unit Northolt (Hallmark House)
What are the risks of an Experian Check?
* Experian checks only have access to publicaly available information and so there will be interim financial management accounts they have not seen
* Time lag - as Experian maybe relying on last years accounts as only have sight of publicaly available data
278
Level 3: Industrial Unit Northolt (Hallmark House)
Why did you apply a keener yield after they scored strongly in Experian Check?
Higher Experian Check rating - shows reduced likelihood to default and therefore stronger secuirty of income, secure tenants bring stability, and reduces void risk
Stronger covenant and higher credit limit - gives more confidence
279
Level 3: Industrial Unit Northolt (Hallmark House)
Why does reducing void period increase the value?
Helps cash flow as the income is now being capitalised sooner
Fewer non-income producing months
Reduces hold costs of empty rates
280
GS - Level 3: Industrial Unit Northolt (Hallmark House)
If you could not use Experian what could you have done?
Used companies House to verify accoutn details - balance sheet / profit and loss statements
281
Level 3: Mult-let Industrial Estate West Drayton (Stone Close and Horton Road)
Why would it suggest that other units may be under-rented if mutltiple leases on the estate were signed at higher rents?
* Internal comparables – strong evidence, same estate, similar units - directly applicable.
* Estate rental tone uplift – new deals set a higher rental tone on estate
282
GS Level 3: Mult-let Industrial Estate West Drayton (Stone Close and Horton Road)
What was your advice on this?
* Advised increasing MR for units deemed comparable with recent lettings
* Removed letting void nd adjust rent based on agreed terms
* Advised on the positive impact on value of new signed leases
* Advised on holding the investment yield despite investment volumes sitting below the 5-year average
* Advised on increase in value driven by asset management
283
Level 3: Mult-let Industrial Estate West Drayton (Stone Close and Horton Road)
How did the evidence support higher rents?
* Subject scheme evidence - direct evidence on estate
* created schedule comparing units on specification to recent lettings - and aligned same specification units with new premium rents
* Checked wider area which further supported rental tone - and difference for higher specification units
284
Level 3: Mult-let Industrial Estate West Drayton (Stone Close and Horton Road)
*
What did you do for units not deemed comparable with recent lettings?
Maintained rents - not evidence to push up MR for units to a poor specification
Evidence showed differential for higher specification units
285
Level 3: Mult-let Industrial Estate West Drayton (Stone Close and Horton Road)
Why did you remove letting void for units that were let since last valuation and how did you adjust the rent based on the term?
* Once lease signed - units not vacant so removed void period
* Adopted lease terms: input rent amount, incentives, lease term (start date/end date/break date etc)
* Adjusted market rent if required changing to align with rent agreed
286
Level 3: Mult-let Industrial Estate West Drayton (Stone Close and Horton Road)
Why did removing void and inputting new lease terms improve Value?
* Helps cash flow as the income is now being capitalised sooner
* Fewer non-income producing months
* Reduces hold costs of empty rates
* New lease terms higher MR so hgiher rent being capitalised - increased value
287
Level 3: Mult-let Industrial Estate West Drayton (Stone Close and Horton Road)
Why would macro-economic uncertainity cause a downward trend in investment volumes?
* Uncertainty increases risk, so investors become more cautious
* Financing costs often rise, or lenders tighten terms
* Fewer comparable transactions, market evidence becomes thin and can hinder transactions
* Reduced liquidity
288
Level 3: Mult-let Industrial Estate West Drayton (Stone Close and Horton Road)
Why did multi-let assets remain the most attractive in the sector and why did you hold your yield profile?
* More liquidty for multi-let assets
* More investor demand for multi-let assets - drivenby more opportunity for reversion and asset managament
* stronger rental growth prospects as occupancy strong and market fundamental good
* void risk spread across entire estate
* sentiment remained stable despite lower investment volumes
* Comparable evidence transactions did not show softening yields
* discussed with agents - sentiment remained stable and no changes in the market
* no obseravble evidence shifts
289
Level 3: Mult-let Industrial Estate West Drayton (Stone Close and Horton Road)
How and what evidence did you support for your yield analysis and why did you confirm with investment agents?
* Collected/selected evidence
* analaysed evidence
* assembled evidence
* adjusted evidence based on subject
* Used direct comparables: location, size, quality, date, asset type etc
* Confirmed with agents - triangulation of data for accuracy and reliability
290
Level 3: Mult-let Industrial Estate West Drayton (Stone Close and Horton Road)
What was the increase in value and how was it driven by asset management and the increased MR as opposed to investor sentiment?
* Increase in value c.£300k
Asset management:
* Signed new leases at higher MR
* reduce void peropd
* reduce vacancy costs/rates
* Uplift in MR for other units across estate on same specification
* Uplift in MR capitalised - higher CV
Movement from sentiment:
- sentiment would drive yield movements (softening/sharpening)
- Sentiment influenced by transactional evidence, but also feeling in the market from amount of capital to be deployed, stock in the market, appetite from investors
- Look for under-bidders, number of bids, competitive tension, volumes of capital seeking to deploy
291
In your examples did you adopt a split yield?
Different yield - if vacant/increased risk of vacancy. Or if unit was over-rented
Split yeilds allows you to reflect different levels of risk
Or Equivalent yield over entire property
292
In your examples what yields did you report?
EY, NIY, RY
293
Nathan Probert Q&A:
Can you Joshua Baum once passed set up a firm and undertake red book valuations?
All members practicing individually or within regulated firm who provide written valuations need to sign up to and comply Valuation Registration Scheme (VRS)
294
What does the Valuation Registration scheme do and what are the three aims?
Regulatory monitoring scheme:
1. to improve quality of valuation and ensure hgihest professional standards
2. Meet RICS requirement to self-regulate effectively
3. protect and raise status of valuation profession as leading expertise in valuation
295
Is VRS mandatory for red book global compliant valuations?
Yes
296
What are the benefits and requirements for the VRS?
Benefits:
- RICS Registered Baluer on thier business/marketing material/reports etc
Requirement:
- Complete APC valuation competenct to L3 or alternative route if done to L2
- Annual fees to RICS
297
What info required for valuation registration scheme to sign up?
Types of valuation
purpose of valuation
number of valuations
Firms fee income from RBG valuations last year
what data sources use
History of negligence claims
Quality assurance and audit procedures
298
As a client what should I expect from a Josh Baum Valuation Red book compliant?
Openness/transparency, RICS protection and IVS, expertise, clear reporting, regulated
299
Why does Josh Baum want to be an RICS member?
Give credibility to my client, enhance my professional network.
Enhance development and career progression
300
when starting a new valuation practice what are the requirements?
Complaints log, AML, RICS register, CPD, plan for succession, VRS,
301
What is CPI and RPI?
Consumer Price Index
Retail Price Index
indicate the level of inflation
302
If you were asked by a longstanding client to give a lower fee - what would you do?
* Our fees are based of our worth and the scope of the instruction and therefore I would be hesitant to offer it
* would discuss with my line manager and the head of my team
* but the most likely outcome would be that I would not give a lower fee as it does not represent our services and could be undercutting.
303
GS: What are typical voids you would apply?
Depending in quality of accomodation / asset type
- 6-9 months for prime assets strong location
- 12 months+ for weaker assets could be upto 24 months
304
GS: What are business rates?
* Tax on non-domestic properties
* Paid by tenant unless vacant
*Calculated by multiplying the rateable value of the property by the appropriate multiplier
305
GS: Business Rates Relief what is this and when does this apply?
Empty property relief - you do not pay business rates on your empty property for:
- 6 months industrial
- 3 months offices
306
GS: What is industrial market like in West London?
* Strong
* Heathrow/M25
* Occupational demand strong
* Fundamentals good
* Investor demand strong
307
GS: If can't find similiar comparables what would you have done?
Local agents / look further afield
308
What are prime rents for industrial West London?
c. £30psf
309
Are there any standard assumptions for void periods?
Marketing / void periods - depend on the size, location and quality / asset class
Industrial - typically 6-12 months for a smaller unit
Industrial - 12-24 months for larger
Office - prime CL - 6-9 months
Office - less prime out-of-town- 12- 24 months
