Case Study Flashcards
1
Q
What was the date of valuation?
A
Date of inspection: 11th February 2019
2
Q
What was the basis of valuation in the instruction letter?
A
- Market Rent
- Market Value
- Market Value on the Special Assumption of Full Vacant Possession
3
Q
What section of the “Red Book” is relevant for valuations for secured lending purposes?
A
VPGA 2
4
Q
What additional information must a report for secured lending purposes include?
A
- Disclosure of any conflicts of interest identified / agreement put in place to avoid a conflict of interest
- Valuation methodology adopted
- Where a transaction has recently occurred on the Subject Property or been provisionally agreed, the extent to which that has been accepted as Market Value
- Comment on the environmental considerations
- Comment on the suitability for mortgage purposes
- Any circumstances the valuer is aware of that could impact the price
5
Q
What sections of the “Red Book” did you adhere to?
A
- PS 1: when does a valuation have to be “Red Book” compliant?
- PS 2: must act in accordance with the RICS Professional and Ethical Standards, must act independently by identifying and managing conflicts of interest, must comply with the minimum terms of engagement
- VPS 1: minimum terms of engagement
- VPS 2: must undertake inspections to verify information being relied upon
- VPS 3: minimum requirements to be stated within a report
- VPGA 2: valuations for secured lending
6
Q
What does VPGA 2 state with regards to conflicts of interest?
A
- Any previous, current or anticipated involvement with the prospective borrower of the property to be valued must be disclosed to the lender
- ‘Previous involvement’ usually defined as within the last two years but can be longer
7
Q
Explain the process of a conflict of interest check?
A
Check property name and name of the borrower in accordance with VPGA 2
8
Q
If there had been a conflict, what would you have done?
A
- Conflict avoidance – consider whether conflict is irresolvable with your impartiality uncompromised. Decide whether to decline or accept instruction
- Written advice to both parties – if you accept instruction write to both parties disclosing nature of the conflict, outline how you propose to manage the conflict and request written confirmation of informed consent
- Conflict management – set up information barrier in accordance with the provisions agreed with both parties
9
Q
What would be contained within the Terms of Engagement?
A
According to VPS 1, the minimum matters must be included in Terms of Engagement:
• Identification and status of the valuer
• Identification of the client
• Identification of any other intended users
• The asset to be valued
• Currency
• Purpose of the valuation
• Basis of value
• Valuation date
• Extent of investigation (i.e. whether inspection will be conducted)
• Nature and source of information to be relied upon
• Assumptions and special assumptions to be made
• Format of the report
• Restrictions for use, distribution and publication
• Confirmation of Red Book / IVS compliance
• Fee basis
• Complaints handling procedure to be made available
• Statement that the valuation may be subject to compliance by the RICS
• Limitation on liability agreed
10
Q
What matters may you have discovered during your due diligence that would have adversely impacted on the value of the Property?
A
- Environmental – if it was located in an area at high risk of flooding (Environment Agency website)
- Contamination – if it was situated on a former landfill site (commissioned Groundsure report)
- Planning – if there was planning permission granted which would adversely impact the property (Croydon Council website)
- Lease terms – prolonged lease with no rent review provision would have an adverse impact on the property (Land Registry)
- Title Deed - onerous restrictions, encumbrances or outgoings contained within the Title Deed. (Received a Report on Title which indicated that there were none)
11
Q
What does the “Red Book” state about the inspection of Properties?
A
According to VPS 2, valuers should take the necessary steps to verify the information being relied upon for a valuation to ensure the information is professionally adequate for its purpose
12
Q
What was the age and construction of property?
A
- Most likely constructed in the Victorian Period. Late 1800s or early 1900s
- More recent extension to the rear of the property (consent granted in 2001)
- Flemish bond masonry – formed by laying headers and stretchers alternatively. Solid wall construction
- Trench or strip foundations would be most likely due to low load and age of the building
- Flat roof with asphalt covering
13
Q
What are the common defects associated with this type of property? What would you you look for to identify these?
A
- Penetrating damp : water pooling on roof, asphalt dries up and cracks or gutters become blocked and overflow = Damp and discoloured patches on ceilings and walls
- Subsidence: ground becomes unable to support the load e.g. if drain collapses or a tree is planted = Vertical cracks
- Ground heave: ground expands and pushes up as moisture content increases e.g. if trees are cut down or die = Vertical cracks
- Timber: roof structure and floor joists. Wet rot = damp to touch; dry rot = fruiting bodies, mycelium strands and cuboidal cracking; infestations of wood boring insects = small circular holes / piles of saw dust
- Spalling: damaged brickwork where the surface of the brick starts to crumble because of the freeze/thaw action
14
Q
How would you describe Croydon?
A
- Commuter town with direct trains to London Victoria, London Blackfriars and London Bridge with a journey time of as little as 12 minutes
- Public sector employers: Home Office, Land Registry, UK Borders Agency
- Private sector employers: AIG, Mott MacDonald, Direct Line.
- Significant volume of conversion of office to residential space under Permitted Development Rights
15
Q
How would you describe the situation of the Property?
A
- Situated on a high street that passes through Croydon town centre
- 0.5 miles south of the prime pedestrianised thoroughfare and the Whitgift and Centrale shopping centres
- Large number of independent restaurants and bars located in proximity to the Subject Property. National tenants include William Hill and Co-Op
- Spice’s Yard Car Park is situated to the rear and provides 132 car parking spaces
- Nearest railway station is South Croydon (0.5 miles southeast) – provides regular services to London Bridge
- Located in close proximity to the A232 - connects Orpington to Ewell
16
Q
How could you tell that there was a gradient in the quality of the retail provision?
A
- Shift from predominantly national occupiers to more local occupiers
- Higher volume of footfall
- Quality of the buildings ranges from aesthetic period properties to poorly maintained properties constructed in the 20th century
17
Q
Describe the specification of the car showroom accommodation?
A
- Single glazed frontage with a powder coated aluminium frame
- Painted and plastered walls
- Floor is carpet tiled at the front with wooden parquet flooring at the rear
- Suspended title ceiling with recessed fluorescent lighting
- WC
18
Q
What source of errors are associated with using a laser measuring device?
A
- Human error – not using the device appropriately i.e. not measuring a horizontal distance
- Systematic error – devices should be regularly checked for accuracy of calibration by checking a known distance and recording the results in a log
19
Q
What did you include / exclude from your GIA measurement of the car showroom accommodation?
A
Gross Internal Area (GIA) is the area of a building measured to the internal face of the perimeter walls at each floor level
Exclude:
• Perimeter wall thickness and external projections
20
Q
What did you include / exclude from your NIA measurement of the car showroom accommodation?
A
Net Internal Area (NIA) is the usable area within a building measured to the internal face of the perimeter walls at each floor level
Include:
• Built in cupboards occupying usable area
Exclude: • WCs • Stairwells • Cleaners' rooms • Areas less than 1.5m in height • Columns, piers, chimney breasts
21
Q
What did you include / exclude from your GIA measurement of the residential accommodation?
A
Gross Internal Area (GIA) is the area of a building measured to the internal face of the perimeter walls at each floor level. There is no single accepted practice for measurement of residential property for valuation purposes. The GIA was taken as being the Net Sales Area (NSA)
Include:
• Areas occupied by internal walls and partitions
• Columns, piers, chimney breasts, stairwells
Exclude:
• Perimeter wall thicknesses and external projections
• Areas less than 1.5m in heights
22
Q
How would your measurement of the residential accommodation change if you measured in an IPMS basis?
A
IPMS 3B: measurement of the area in exclusive occupation, including internal walls and columns, measured to the Internal Dominant Face (IDF) and finished surface.
Changes if I had measured using IMPS 3B:
• Measure to the IDF which is the finish comprising more than 50% of the floor to ceiling height for each IDF Wall Section
• Include areas with a restricted height less than 1.5m
• Include but state separately: attics, basements, garages, limited use areas
• Exclude but may state separately: patios, unenclosed parking area, vertical penetrations that form part of common facilities
23
Q
What is Market Rent?
A
‘The estimated amount for which an interest in real property should be leased’
• On the valuation date
• Between a willing lessor and a willing lessee
• On appropriate lease terms
• In an arm’s length transaction
• After proper marketing
• When the parties had each acted knowledgeably, prudently and without compulsion
24
Q
What is Market Value?
A
‘The estimated amount for which an asset or liability should exchange’
• On the valuation date
• Between a willing buyer and a willing seller
• In an arm’s length transaction
• After proper marketing
• When the parties had each acted knowledgeably, prudently and without compulsion
25
What is Vacant Possession Value?
Market Value of the property under the Special Assumption that the property is vacant
26
What were the conditions of the rent review clause?
* Upwards-Only Open Market Rent Review – rent reviewed on what the commercial property would be let for on the open market i.e. if rent assessed as being lower than currently achieved, rent will stay the same
* Assumed term of 5 years
* Disregard tenant improvements if landlord consent has been granted for the works
* Time is not of the essence i.e. failure to exercise right within the time limit means that the right is not lost
* Excluded the fact that they occupied the unit to the rear
27
What is an effective full repairing and insuring (FRI) lease?
* Tenant has responsibility for internal non-structural repairs
* Landlord takes on the responsibility for the repairs to the structure and outside parts of the building but recovers costs of doing so from the tenant
* Landlord will also maintain insurance and recover cost of premium from the tenant
28
Was the lease inside or outside of the 1954 Act?
* The lease was contracted inside of the act
| * This would give the tenant security of tenure at the end of term
29
What would the landlord have to do to terminate the tenancy given that the lease is inside the 1954 Act?
Would have to issue tenant with a Section 25 notice no more than 12 months and no less than 6 months before the date for the termination of the tenancy
30
What grounds would the landlord have to refuse a new lease from the tenant given that the lease is inside the 1954 Act?
Section 30 states that there are SEVEN grounds for opposition to grant a new tenancy:
1. Breach of repairing covenant
2. Persistent delay in paying rent
3. Other substantial breach
4. Provide suitable alternative accommodation
5. Uneconomic subdivision i.e. landlord could get more from renting out the property as a whole (compensation payable)
6. Demolition or reconstruction (compensation payable)
7. Owner occupation (compensation payable)
Would have to compensate tenant 2 x rateable value as they have been in occupation for longer than 14 years
31
How would you obtain vacant possession under the Assured Shorthold Tenancy (AST) agreement?
Evict tenant through a Section 21 notice, have to provide at least 2 months’ notice. Issued at the end of a fixed term tenancy or during a tenancy when there is no fixed end date (i.e. ‘periodic tenancy’)
32
What use class does the property fall under?
* Sui generis’ use class (informed by local planning authority website)
* When no use classes order category fits, the use of the land or buildings is described as sui generis, which means ‘of its own kind’
33
Explain the principle of Zoning?
* Used for retail properties to create a unit of comparison for different sized buildings
* Rationale – the rental value of the property reduces away from the street i.e. the area at the front of the shop is most valuable to a retailer as it will generate most sales
* Zone A closest to the window is most valuable with the value deceasing with distance from the frontage.
* Halving back principle with 6.1m (20 ft) zones
34
Explain how you applied the principle of Zoning to the Property?
* Property was 21m deep
* Divided it into three zones of 6.1m and the remainder: A, B (A/2), C (A/4) and D (A/8)
* Masking - could have adopted to apply a rental discount to the area behind the ancillary space due to masking but chose not to as it was visible from the secondary entrance from Spices Yard
35
How did you account for the property’s return frontage?
* Return frontage increases the prominence of the shop – customers can see inside the shop thus enhancing the tenant’s opportunity to attract more customers
* Typically one would make an adjustment of 2.5-10% to the total rental value of the ground floor to reflect the benefit of the return frontage
* Given that the return frontage was onto a secondary street and only had partial glazing, it was agreed to apply a 5% premium to the rent.
36
Had the return frontage been onto a more primary pitch, how would you have dealt with that?
* Could have applied a rental uplift of up to 10% to the total rental value
* Zoned from more than one frontage, using the value attributable to each street frontage and taking the highest rental psm for each overlapping zone area
37
Did you consider the impact of masking due to the stairwell located off Spices Yard?
* Could have applied a discount to the area which was masked by the stairwell and which was therefore not visible from South End
* Due to the return frontage this area was still visible from the secondary frontage and so no allowance was made
38
How did you arrive at an ERV of £30.00 and £35.00 per sq ft Zone A for the retail accommodation?
* I used my professional judgement to interpret the comparable data, taking account the Subject Property was located on a poorer pitch than the comparable evidence.
* ERV would have been approximately £29.50 prior to applying the 5% premium
* This range was corroborated by the rent review that was settled at the Property in December 2018
39
How did you arrive at an ERV of £14.74 per sq ft for the car showroom accommodation?
Strongest comparable evidence provided by the letting on Church Street in Theale at £13.24 per sq ft
• Similarities: let to a local tenant, situated on a high street
• Differences: property set back from the road, on the end of the high street but does benefit from a forecourt
40
How did you weight the comparable rental evidence at the time of valuation?
1. Open market lettings
2. Lease renewals
3. Rent reviews
4. Third party determinations
5. Sale and leasebacks
6. Inter-company transactions
41
If you were to conduct the valuation now, how would you weight the comparable rental evidence?
Guidance Note RICS Comparable Evidence in Real Estate Valuation (1st edition), 2019. Valuer should use professional judgement to assess importance of evidence on a case-by-case basis
• Category A: direct comparables
• Category B: general market data
• Category C: other sources
42
What is a net effective rent?
This is the rent that would be agreed between the parties for a letting of the premises on the relevant terms and conditions, but without incentives forming part of the transaction
Calculated as post fit-out, pre-incentive i.e. the difference between an allowance for tenant fit-out (usually 3 months) and the rent free period
43
Why did you use the outcome of the rent review (net effective rent) as your opinion of Market Rent (headline rent)?
Would have been minimal or no difference between net effective and headline rent. Would assume a 3 month period for tenant fit-out, which is in line with the typical 3-6 month rent free period for car showrooms
44
What impact would lease length have on rental value?
Tenant’s seek a discount if they have a long lease i.e. one which is longer than a lease that might be granted in the open market
45
Why did you not analyse the rental comparables on a net effective basis?
Rent free periods were not available for all of the comparable evidence and therefore I analysed the comparables on a headline basis to ensure that I was carrying out a like-by-like comparison
46
What is a net initial yield?
* Immediate return of the property based on the present income that the property produces
* Calculated as passing rent divided by Gross Purchase Price (inclusive of purchasers costs)
47
What purchaser’s costs would you include when calculating a net initial yield?
* 1% agents fees (+ 20% VAT)
* 0.5% legal fees (+20% VAT)
* Stamp duty:
Up to £150,000: Zero
£150,001 - £250,000: 2%
+ £250,000: 5%
48
What type of yield did you apply to value the car showroom component?
* Targeted an equivalent yield of 6.00%
* Equivalent yield is used to value reversionary properties and is an average time weighted yield
* Actual equivalent yield was 6.03%, rate used to capitalise the income
49
How did you derive the EY from the comparable evidence you used?
* Where a property is rack rented NIY = EY
| * Can derive EY from comparable evidence by forming an opinion of what the Market Rent would be
50
The high street retail investment comparables date back to March 2017, how did you account for this?
* Examined the overriding yield trends
| * Judged market sentiment from discussions with local investment agents
51
How did you account for the tenant’s fit-out when valuing the property?
* Under the yielding up clause the tenant was required to return the property in the same condition which it was let under
* Tenant improvements were therefore disregarded when establishing the Market Value of the Property
52
What is your understanding of covenant strength?
Assessing the ability of the tenant to perform the covenants in the lease e.g. rent, service charge and repairing covenants
53
How have you accounted for covenant strength in your comparable evidence?
* Covenant strength is reflected in the pricing of a property investment
* FTSE 100 companies are considered more likely to perform the covenants of the lease and therefore the asset achieves higher pricing
* P. Kingham Limited had a Dunn and Bradstreet rating of 1A1
54
How do you check covenant strength? Is Dunn and Bradstreet reliable and how up to date is it?
* Will be based on latest financial accounts – will be accurate as long as accounts are not misstated
* Could be up to 12 months old depending on the release date of the latest set of accounts
55
How did you arrive at 12 months as the void period?
* Conversations with local agents informed me of the typical void period of a retail unit
* Accounts for time to apply for a change of usage from generis to conventional retail
* Would cover marketing period and time to apply for planning permission
56
How did you calculate the rates liability?
Obtained the Rateable Value for the Property from the Valuation Office Agency (VOA) website. Multiplied this by the business rates multiplier:
0.48 x £24,000 = £11,520
(Property would benefit from the small business rates multiplier as the rateable value is below £51,000)
57
Why did you not account for business rates exemption on empty properties?
* I am aware that you do not have to pay business rates on empty properties for 3 months
* I did not include this exemption as it is related to the tenant, rather than the property itself
* Under the hypothetical scenario where the property is vacant, the tenant may have decided to vacate 3 months prior to the expiry of the lease, in which case the landlord would not benefit from the exemption
58
How would the length of the assumed term impacted what the value of the property is under the VPV scenario?
* The Market Rent would be capitalised into perpetuity from the beginning of the new lease
* The assumed term would impact the yield that would be applied to the Property as it would influence its attractiveness to a prospective investor
59
On what basis were you able to confirm that the Property was suitable for loan security purposes?
Based on the loan terms provided:
• Viable market for the asset assuming a reasonable marketing period
• Value of the asset would be able to cover the loan
• Income from the asset able to cover interest payments
• Lease length relative to the length of the loan
60
What do the symbols on your location plan denote?
* Blue flag – Golf Course
* Star – Other tourist feature
* Stag – Wildlife Park
* Flower - Garden
* Purple circles – Stations
* Green Road – Primary Route
* Purple Road – Main Road
* Orange Road – Secondary Road
* Yellow Road – Generally more than 4m wide
* White Road – Generally less than 4m wide
61
What do the PW and PO symbols on your street plan denote?
* PW – place of worship
| * PO – post office
62
What’s the difference between a street plan and a GOAD plan?
* GOAD plan – incorporates individual buildings and their uses. Named after Charles E. Goad
* Street plan – shows names of streets, 1:7500 scale. Produced by Ordinance Survey
63
What does the pink dashed line on the OS site plan indicate?
Electoral boundary between Fairfield and South Croydon
64
Examining your comparable retail rental evidence, how was the basement space accounted for when interpreting the rental evidence ITZA from 206 High Street (Terra House)?
The basement space was treated as A/20 by the local agent who zoned the property. I was informed that this was consistent with the approach used for the rest of the street
65
What impact does the nature of the rent review have on the value of a property?
* RPI linked rent reviews have been shown to produce greater returns for landlords as a result of rents being linked to general inflation rather than the rental market
* RPI linked rent reviews are often disliked by tenants due to the lack of connection between the inflationary increase and the local property market
* May compensate elsewhere on the lease terms in order to get an RPI linked rent review
* RPI generally preferred by landlords to CPI as gives a higher rate of inflation
66
How would you calculate a WAUTC?
* Weighted average unexpired term certain
* Weights the time left on the lease by the proportion of income that the tenant contributes
* Σ (Tenant Income / Overall Income) x Length of Unexpired Term
67
Examining your comparable retail investment evidence, wow would you account for the outstanding rent review on 84 High Street, Bromley (Boots Opticians)?
The rent review was upwards only and so it is assumed that upon settlement, the rent would increase. It would be assumed that this was priced into the purchasers calculations, meaning that the unit is likely to have traded at a lower yield than it would have done if it did not have an immediate reversion i.e. would have bought off a deemed yield rather than a contracted yield
68
Examining your comparable retail investment evidence, what influence would the fact that 210-212 Croydon Road, Beddington (William Hill) intercommunicates with the adjacent unit have on it as a comparable?
Indicates the retailers commitment to the location. If the adjacent lease was longer then it would increase the likelihood of the tenant wanting to stay when it got to their next break option / expiry
69
Examining your comparable retail investment evidence, why did you include 74-80 North End, Croydon (Various tenants) when it included office accommodation?
* 93% of the income was generated by the retail component
* A blended yield would have been applied when capitalizing the income from this asset which would be predominantly weighted on the retail component
* This was one of the closest investment comparables geographically to the subject property
70
What is the difference between an Equivalent Yield and a True Equivalent Yield?
Equivalent: Assumes rent is paid annually in arrears
| True Equivalent: Assumes rent is paid quarterly in advance
71
Why were you not able to use the vacant properties shown on the GOAD plan as comparable evidence?
The details of the lettings had not been published and so I was unable to contact the agents to confirm the details.
* 46 South End – appeared to still be vacant. Was not obviously being marketed
* 15 South End – freehold being marketed £1,500,000 but had not been sold
* 43 South End – vacant training centre with D1 use. Was not obviously being marketed
72
What is the difference between Initial Yield (Deemed) and Initial Yield (Contracted)?
* Initial Yield (Deemed): where there is an outstanding rent review, this is yield based off what you anticipate the rent review to be settled at
* Initial Yield (Contracted): this is the yield based off the current passing rent
73
Why is the rear window of the first floor situated higher than the other windows?
* The two bedrooms of the rear first floor flat were raised, with a void underneath
* This area was used as storage and was under 1.5m in headroom
* Was excluded under our definition of GIA but would have been included under IPMS 3B
74
How did you account for the fact that the tenant owned the property to the rear?
* The tenant would be assumed to be a special purchaser, as the asset would have special value arising from its ownership which would not be available to other buyers
* Market value would ignore any price distortions caused by special value
* Would consider it in my yield selection as it implies continued long-term occupation by the tenant
75
Did you consider refurbishing the residential accommodation or redeveloping the property?
Spoke to a local agent who confirmed that minimal uplift would be achieved if refurbishing the residential accommodation and selling as investment product
Conducted a residual valuation on the property. With the inputs used I did not achieve a higher Market Value than the approach used
Development would be impacted by the fact that the property is in a Archaeological Priority Area i.e. where development is likely to impact archaeological remains
76
What returns would the residential element of the property generate for investor?
Rent / Gross purchase price = 5.10%
Examine comparable residential investments and this would be in line with what an investor would anticipate to receive from this type of investment
77
How would your approach have changed if you'd carried out the valuation in line with the latest RICS Valuation - Global Standards?
Under VPS 3, I would have to explicitly state the impact of sustainability factors on the value within the valuation methodology. Would comment on:
• The property having EPC ratings of B and C, meaning it meets the typical sustainability criteria expected
• The very low likelihood of flooding
• Poor disability access, with there being a step at the front entrance to the ground floor unit
78
Why did you measure the ground floor unit on an NIA and GIA basis?
To be consistent with the comparable evidence. High street retail units are expressed on an NIA basis whereas car showrooms are expressed on a GIA basis
79
Given there was such a wide range of rental values for Car Showrooms, how did you reach your opinion of Market Rent?
I applied greatest weighting to the car showrooms that were a comparable size and those that were closest to the Subject Property. I interpreted each of the Comparables in the context of the Subject Property in order to reach my opinion of Market Rent
80
How did you reach an estimate for the service charge shortfall under the VPV scenario? What would this cover?
I spoke to a member of our property management department who estimated what the service charge shortfall would be, based on the nature of the property
The service charge would cover ongoing maintenance (e.g. cleaning the windows and gutters), utilities (e.g. heating) and security (e.g. member of staff to check on the property)
81
What did you assume would happen at the tenant break in 4.88 years?
Given the length of time before the next lease event, I opted to capitalise the income into perpetuity. As the lease expiry was approximately 5 years away, it was appropriate to be silent on any void costs that might occur
82
Why would a bank want to know the Vacant Possession Value?
Under the scenario where the tenant defaults, they want to know what the property would be worth relative to the loan
83
Why were you competent to value a car showroom?
* Has resemblance to other forms of asset classes e.g. retail
* Acting under supervision from colleagues who were able to verify your approach
* Spoken to agents who were more specialised in this area and were able to update me on the local market
84
How did you account for the fact that some of 58 Tilehurst Road was a service centre?
I estimated rents for the constituent parts of the property and then aggregated them to form an opinion for the car showroom element of the property. Equated to approximately £11.50 psf on the car showroom element and £7.50 psf on the service centre element
85
What does it mean when there's a cap and collar on the rent review?
The cap is the maximum or upper limit which it can change and the collar is the minimum which it can change
86
What factors influence the level of rent for a car showroom?
* Level of footfall or passing vehicles
* Prominence on the street
* Complimentary local occupiers
87
How could you verify the age of the property?
* Land Registry
* Historical OS maps
* Local Council records
* Informed by the tenant
88
How would the property have been adapted to install the large glass frontage?
Would have installed some steel beams as the wall that was removed would have been solid and load bearing
89
What windows does the property have?
* They are uPVC windows in the style of sliding sash windows. Likely that they would have originally have been timber
* Stone cornicing under the windows
90
The property does not look as if it has a flat roof from the the front, why is that?
Parapet wall is designed to hide the flat roof
91
What type of flat roof did the property have?
* Frame of the roof will most likely be of a timber construction, with wooden joists
* Asphalt covering
* Most likely a cold roof (i.e where insulation is below the roof structure and below weatherproof layer). This was the most popular method at the time
92
What was the construction of the later extension at the rear of the property?
* Most likely that the extension will have been in the same construction to be in keeping with the rest of the property
* Any work they will have done when the property was extended would have to comply with the prevailing building regulations (e.g. may have had to improve the insulation, roofing, fire regulation and possibly foundations)
93
What was the drainage provision at the property?
* Roof would be pitched by a minimum of 2 degrees in accordance with building regulations
* Parapet gutters round the perimeter of the roof would lead to the downpipes at the rear, before passing into an underground drain
94
How did you account for the stamp duty on the residential element of the property?
The comparable evidence used to calculate the value of the residential flats was expressed on a net basis and so no adjustments had to be made
95
What would an appropriate bulk discount be to offer on a large group of residential flats?
10-15%
96
If works on the property were required how would you include this in your valuation?
* I would obtain contractors estimates or speak with a building surveyor to estimate the cost of undertaking the works
* The cost of undertaking the works would be deducted from Market Value
97
What stamp duty do you pay on mixed-use property?
Same as commercial properties:
Up to £150,000: Zero
£150,001 - £250,000: 2%
+ £250,000: 5%
98
Who were the agents you spoke to when collecting comparable evidence?
Car Showroom: Haslams, Gerald Eve, Automotive Property Consultancy (APC) Limited
Local Retail Agents: Stuart Edwards Fullermoon, SHW, Gildersleve & Payne
99
What made you think that change of use planning could be obtained under the VPV scenario?
* The Croydon Local Plan 2018 states that a range of independent shops and restaurants along South End will continue to support the area
* Adjacent properties are in retail usage and so likelihood or getting change of use is high
100
Why does the annual running yield increase and then decrease for the car showroom valuation?
A stepped rent had be agreed, rising from £21,500 to £22,250 to £23,000
The property then reverts back to the Market Rent of £22,250
101
What basis of measurement are the capital values psf calculated on for the car showroom valuations?
GIA (1,407 sq ft)
102
Examining your comparable car showroom rental evidence, how does 218 Purley Way, Croydon (Ancaster Group) compare to the Subject Property? Why does it have a lower rent?
Similarities:
• Located in closest proximity to the subject property
Differences:
• Significantly larger unit so an allowance for quantum would have to be made
• Modern-purpose built unit with forecourt
103
Examining your comparable car showroom rental evidence, how does Church Street, Theale (Surrey Car Sales) compare to the Subject Property? Why does it have a lower rent?
Similarities:
• Independent car dealership
• Situated on a high street
Differences:
• Set back from the road in a less prominent position
• Situated on the end of the high street with less footfall
104
Examining your comparable car showroom rental evidence, why does Bath Road, Maidenhead (Sytner) have a higher rent?
Differences:
• Low site density of the property of 25%
• Modern-purpose built unit
• Forecourt located either side of busy A-road
105
Examining your comparable car showroom rental evidence, why does 2A Godolphin Road, London (Dolphin Cars) have a lower rent?
Differences:
• Located on a residential street
• Poorer quality space e.g. roller shutter garage doors with no glass frontage
106
Examining your comparable retail rental evidence, how does 301-305 High Street, Croydon (Glow) compare to the Subject Property?
Similarities:
• Located in close proximity to the subject property
Differences:
• Situated in closer proximity to the prime retail thoroughfare
• Beauty Salon with sui generis use
• More prominent position but did not have the same degree of return frontage
107
Examining your comparable retail rental evidence, how does 291-293 High Street, Croydon (Inspired Asset Management) compare to the Subject Property?
Similarities:
• Located in close proximity to the subject property
• Return frontage
Differences:
• Situated in closer proximity to the prime retail thoroughfare
• Estate Agent with A2 use (professional and financial services)
• Return frontage onto a more secondary street
108
Examining your comparable retail rental evidence, why does 218 High Street (Excellent Hair & Beauty) have a higher rent?
Differences:
• Situated in closer proximity to the prime retail thoroughfare
• Much smaller unit - importance of the global rent and overall affordability
109
Examining your comparable car showroom investment evidence, how does 117 London Road, Camberley (Volkswagen Group) compare to the Subject Property?
Similarities:
• Comparable location on the outskirts of Camberley town centre with return frontage
Differences:
• Marginally longer unexpired term
• Preferable tenant covenant
• Modern-purpose built unit
110
Examining your comparable car showroom investment evidence, how does 443a Brighton Road, South Croydon (Peugot) compare to the Subject Property?
Similarities:
• Located in closest proximity to the subject property
• Rack-rented investment (£14.40 psf)
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Differences:
• Marginally longer unexpired term
• Preferable tenant covenant
• Modern-purpose built unit
• More established location for car showrooms
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111
Examining your comparable retail investment evidence, how does 51-53 London Road & 1-6 The Parade, Croydon (Various tenants) compare to the Subject Property?
Similarities:
• Located in close proximity to the subject property
• Comparable WAUTC
• Let to local tenants
Differences:
• Multi-let meaning increased diversification of income but increased asset management costs
• Conventional A1 retail use
112
Examining your comparable retail investment evidence, how does 208 High Street, Croydon (Allure) compare to the Subject Property?
Similarities:
• Located in closest proximity to the subject property
• Let to a local tenant
Differences:
• Longer unexpired term
• Preferable retail pitch
• Hairdresser with A1 use
113
When inspecting the property, what did you have to be conscious of give that the ground floor unit was operating as a car showroom?
* Any evidence of contamination from oil spillages (servicing work was carried out in the property to the rear so this was deemed to be unlikely)
* Subsidence due to the weight of the cars. Would be shown by vertical cracking in the walls
114
What did you have to be conscious of give that this property was at the end of the terrace?
End of terrace properties generally act as bookends for the entire terrace. This is where longitudinal expansion thrusts the end-of-terrace properties sideways as a whole, including their flank walls
115
How was the service charge administered across the property?
Ground floor retail unit had to pay a fair proportion of the overall service charge, which was stated in the lease to be 40%
116
Why did you not take account of the service charge shortfall on the residential properties, given they would not have paid service charge under the terms of their ASTs?
Given that the residential element of the property was valued on a comparable basis, rather than using the investment method, it was not necessary to factor in the service charge shortfall
117
How would the demise vary if this property was single let, rather than multi-let? How would this impact the repairing obligations?
The demise of the ground floor unit is to the inner surface of the outer walls. It would be to the outer surface of the outer walls if it was single let
If it was single let then the tenant could be responsible for the structure of the building and the repairing obligations could be on an FRI basis rather than an effective FRI basis
118
How is rent typically calculated on the larger purpose built units. What is shown in your comparable rental evidence table?
Rent is apportioned between the showroom and the service centre elements of the property? The rent quoted is on a blended basis
119
What as the specification of the residential accommodation?
* Gas fired central heating
* uPVC double glazed windows
* Wood laminate flooring throughout
* White tiled bathroom with an over bath shower
* Fitted kitchen with built-in appliances
* Refurbished approximately 3-5 years ago
120
What were the opening hours for the subject property?
Mon - Fri: 8am - 6pm
| Sat: 8am - 12:30pm
121
What was the purpose of the valuation?
Loan security
122
What level of liability did you offer with the valuation?
Lower of £75m and 33% of the property value
123
Provide an example of some of the assumptions which you made when reaching your opinion of value?
* Tenant is capable of meeting their obligations, and that there are no arrears of rent or undisclosed breaches of covenant
* The building is structurally sound and there are no structural, latent or other material defects
* The building has been constructed in accordance with all statutory and bye-law requirements and there are no breaches of planning control
* The property is connected, or capable of being connected without undue expense, to the public services of gas, electricity, water, telephones and sewerage
* That the properties are not subject to any unusual or especially onerous restrictions, encumbrances or outgoings contained in the Freehold Title
124
What was your opinion of Market Rent for the residential elements of the property?
* £34,200 per annum
* Flat to the rear of the first floor would command the highest rent (£1,150 pcm) as it was 2 bedrooms
* Flat to front of the first floor would command the second highest rent (£900) as it was 1 bedroom
* Flat on the second floor would command the lowest rent (£800) as it was 1 bedroom and there is an additional flight of stairs
125
Were you asked to provide an indication of the reinstatement costs?
* Yes, but no liability was given with the estimates as they were purely a guide for insurance purposes
* Property had not been inspected by a quantity surveyor or such other person so were unable to provide any liability
126
What was included in the Report on Title? Why was it important for you to review?
Summary of the legal title providing an overview of the history of ownership, encumbrances on the property, and any other relevant elements of legal history
Will show any onerous encumbrances/restrictive covenants that burdens the land it restricts. This could have a material impact on value
127
What different types of onerous encumbrances/restrictive covenants could there have been on the title?
* Restriction on the use of the land e.g. may place a restriction on the property that it cannot be used by a business which directly competes with the seller
* Restricting the number/type/height of buildings that can be erected on the land affected
* Easement giving another party the right to cross or otherwise use the land for a specified purpose
* Encroach where the property owner has violated the property rights of the neighbour by extending the structure onto the neighbours land or property
128
What does the colour coding on the OS site plan indicate?
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Grey - road
Peach - building
Yellow - multiple surface (e.g. paved and natural environment)
Green/grey - mandmade surface
Pink - structure
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129
How would your approach to valuation differ if your property has consent for convention retail use?
* Typically would reduce the target equivalent yield by 25bps to reflect the fact that there would be greater risk finding another tenant
* The tenants long term occupation at the unit and the fact they own the property to the rear meant that their likelihood of vacating was low which counteracted any impact on the yield due to the car showroom use
130
If the residential accommodation on the upper floors was sold off on a long leasehold basis, what would you have to be aware of if disposing of the property?
The owners of the leasehold interest in the flats would have first right of refusal as the non-residential element is 50% or less of the internal floor area of the premises (ignoring any common parts)
131
What impact would the lease being contracted inside of the 1954 Act have on the value of the property?
Landlord would have less flexibility at the end of the term e.g. if they wanted to redevelop/owner occupy/ sub-divide they would have to pay the tenant 2 x rateable value
Unlikely to have a material impact on value as redevelopment potential is slim and buyer pool looking to owner occupy would be small
132
What is an Assured Shorthold Tenancy (AST)?
Assured shorthold tenancy (AST) is the most common type of agreement used by landlords to let residential properties to private tenants. It comes with limited security of tenure
133
Why would an investor base their purchase price for the residential units on a comparable basis rather than using the investment method?
* Due to the short nature of the income, the value would be underpinned by what could be obtained for the properties if they were vacant
* Deemed it not to be necessary to have a bulk discount as the lot size was relatively small and would be anticipated to attract a good level of interest
134
How did you decide on the value ascribed to the residential accommodation?
* Had regard to comparable evidence from the sale of second-hand residential flats in Croydon
* Despite the flat at the front of the first floor facing onto the road, it benefited from being dual aspect
* Flat on the second floor was attributed a higher value because of better sunlight, reduced traffic noise, improved air quality and view
135
What are the two warehouse units denoted on the GOAD plan?
* 20C: Storage for an event equipment hire company
| * 57-59: Demolished and Heathfield Academy Constructed
136
What are the dwellings located on the GOAD plan?
Residential accommodation
137
How would you carry out the valuation differently if you were instructed today?
* Conduct in accordance with Red Book Global
* Include a material uncertainty clause in accordance with VPGA 10. Use wording recommended by the RICS
* Car sales decreased 97% in April 2020. Would have to consider how an investor would perceive the tenant covenant and most likely increase the yield
* Market rent will have reduced but unlikely to be the transaction evidence to demonstrate this
* Void periods on the VPV scenario would increase to reflect the longer time it would take to re-let
138
Why do your maps in the appendices state that they are not to scale when there is a scale bar?
In the process of recreating the maps the scale may have become distorted and so they are not to the scale quoted
139
What do the the symbols on the GOAD plan denote?
* Dashed line - road crossing
* Black circle - bus stop
* P - Car park
140
What blended returns would the property generate an investor?
NIY = 5.36%
Rent / Gross Purchase Price
£54,978 / £1,024,890
141
How does valuation by targeting an equivalent yield work?
* Equivalent yield is a weighted average of the Net Initial Yield and Reversionary Yield
* Will target an EY for the entire income stream to determine value
