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Mia Bourne APC Revision > Case Study > Flashcards

Case Study Flashcards

1
Q

What external defects were you looking out for on your inspection?

A

Flat roof - risk of water pooling / water ingress
I didn’t have access to the roof, however I inspected internally and did not spot any signs of penetrative damp.

Looked for brown staining on the concrete frame - as this could indicate the presence of deleterious materials such as calcium chloride, high aluminium concrete.

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2
Q

What is another example of a deleterious material?

A

High Aluminium Cement

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3
Q

What other types of flat roof?

A

Felt roof - less durable require more maintenance compared to asphalt.

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4
Q

What due diligence did you carry out on the vendor?

A

ID proof of address within 3 months and same for anyone with 25% share more fo the company

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5
Q

What do you do with the due diligence?

A

Run it through a third party database to verify the information provided and will highlight any red flags.

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6
Q

What red flags?

A

any legal proceedings against them, if they are on any sanction lists.

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7
Q

Who was the client?

A

private property company

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8
Q

How did you carry out a conflict of interest?

A

checked internal data base, sent an email around to the wider firm.

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9
Q

What did the conflict of interest email say?

A

Identified selling entity, property address.

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10
Q

What statutory enquires did you carry out?

A

EPC, is it listed, conservation area.

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11
Q

What fees do you charge?

A

two parts to the fee
Entry fee - covers inspection, marketing, running the auction.
Commission - charged on a successful sale.

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12
Q

Do you always charge the same fee?

A

we have a standard fee structure which varies according to lot size.

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13
Q

Would you every change your fee?

A

we discuss the fee before setting it out in writing, however unless we are changing the service we are offering we will not cut our fee.

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14
Q

Would you ever do anything for no fee?

A

It wouldn’t be covered by our professional indemnity insurance and it would be doing a disservice to the industry.

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15
Q

Is charging a buyers fee ethical?

A

We are required to do AML checks on all registered bidders, not just the buyers, in order to keep the contract unconditional. The buyers fee covers the cost of doing this.

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16
Q

What goes into your terms of engagement?

A

Property address
Entity selling
Solicitor details
Date of the auction
Entry fee
Reserve price

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17
Q

Why would someone invest in Dorking?

A

popular and affluent surrey commuter town

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17
Q

Can you expand on why affluent town is attractive?

A

In affluent towns more people with disposable income and driving up retail sales making the high street more resilient.

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18
Q

Why do you zone a property?

A

to compare the rental values of retail units of different sizes.

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19
Q

How does zoning work?

A

Zone A is the most valuable due to the glazed frontage
then it is a half back theory by 6.1m m zones
Zone B is half the value of zone A and so on.

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20
Q

How did you account for the upper floors and basement

A

I applied A/10 to the first floor and A/20 to the basement.

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21
Q

What do you mean by headline rent?

A

gross rent relievable

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22
Q

How would you factor in rent free?

A

calculate net effective rent by working our rent receivable over the term less the rent free divided by the number of years.

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23
Q

what type of rent review provision were there?

A

open market upwards only rent review

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24
Q

what is an open market rent review?

A

rent would be adjusted to the market rent if the premises would be available to let in the open market at the review date

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25
Q

What other defects would you look out for externally on inspection?

A

Any evidence of cracking

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26
Q

What would you do if you spotted cracking?

A

Photograph and document
follow the crack to the source
report to my client
recommend for a building surveyor to inspect

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27
Q

Have you seen anything in the news regarding concrete?

A

Reinforced autoclaved aeriated concrete
it is a lightweight form of concrete compromises structural integrity of a building
used in public sector buildings in the UK

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28
Q

What do you mean by lack of certainty of completion timelines?

A

in private treaty offers are made subject to contract, whereas auctions contracts exchange at the fall of the gavel.

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29
Q

What brings about certainty in auctions?

A

unconditional auction contract

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30
Q

what are the downsides of auction?

A

no confidentiality
initial costs are higher - seller has to provide full legal pack prior to accepting an offer, entry fee
precludes people who rely on finance

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31
Q

What was the general impact of COVID 19 on the high street?

A

Retail units were forced to closed, stores had nil revenue
This lead to many retail shops closing - downward pressure on rents - rent rebased
Retail sales fell
Yields moved out to reflect the risk

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32
Q

How do they service the store in terms of stock? how would this affect value?

A

Through the front
May only be able to have certain types of tenant, for example supermarkets or coffee shops may get deliveries throughout the day which they wouldn’t want through the customer entrance

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33
Q

How did you order your comparables?

A

Ordered them in how I placed the most weighting

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34
Q

How did you compare Godalming comparable?

A

The property was let to WH SMITH, in a similar commuter town with a similar unexpired term. From speaking to local agents as well as my wider research I established that the yield for this property was still appropriate at the time of my appraisal.

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35
Q

On your comparable in Woking, you mention previously that buyers were looking for long secure income, this one lacks any of that - is half a percentage point enough?

A

The yield was reflected in the redevelopment potential. I was aware that there was conversations to redevelop the upper floors into 8 self contained flats.

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36
Q

If it didn’t have planning what would the value be that someone is attributing to that?

A

Hope value.

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37
Q

Can you put a figure on hope value?

A

very hard too - every investor will have a different idea on what it is worth to them.

38
Q

Why didn’t you implement the marketing strategy at the start?

A

Was additional marketing to the catalogue that goes out to around 70,000 people.

39
Q

Are you allowed to change guide prices and reserves?

A

Yes, as long as it is prior to the auction and we update our website and send a mail out to all interested parties notifying them of the guide price reduction.

40
Q

Where does it say that you can change the guide price?

A

On the website

41
Q

What is a guide price?

A

it is an indication of the minimum price at which the seller might be prepared to sell.

42
Q

What is the reserve?

A

the minimum price an auctioneer can sell at

43
Q

What is the relationship between guide and reserve?

A

Can’t be misleading
At Allsop If it is a single figure the reserve cannot exceed the guide
If it is a range then it does not exceed bottom end of the range

44
Q

What is the RICS Guidance on Guide and Reserve?

A

Reserve can sit within the range
if it is a single figure can be 10% higher or lower

45
Q

Who enforces guidance around guide and reserve?

A

Consumer protection regulations
enforced by advertising standards authority
Office of fair trading

46
Q

When you revised the guide price how did you come to £775,000?

A

I sought feedback from interested parties who highlighted that this would be the level they would be interested at purchasing the property, it was based on this feedback from the market that informed my reasoned advice.

47
Q

Are there any downsides of bringing the price down then the property not selling?

A

Starting point for negotiation after is lower.

48
Q

All the parties were of equal credibility, how did you know this?

A

They were known buyers to Allsop and were cash buyers and not reliant on obtaining finance for purchase so there wasn’t risk of a mortgage offer being turned down.

49
Q

You have mentioned Gross Initial Yield, however everything you have spoken about has been on a NIY. Why?

A

we do that because we sell to a lot of private investors who not all will pay an agent or legal fees to the same extent, investors can take off any costs that are appropriate to them,

50
Q

What are purchasers costs made up of?

A

Agent 1%
Legal 0.5% + VAT 0.3%
Stamp Duty (5%)

51
Q

What are Stamp Duty Brackets?

A

£150,000 - 0%
£150k £200k - 2%
anything over £200k - 5%

52
Q

What 3 things do you need to have on a plan?

A

Scale size
copyright
north arrow

53
Q

Does your property form part of St Martins Walk Shopping Centre?

A

No, not in the properties demise.

54
Q

What is in a special conditions of sale?

A

Property address
Entity
Title number
if VAT is applicable
Tenancy schedule
arrears

55
Q

What happens if a buyer does not complete in time?

A

Solicitor will send out a notice to complete within 10 working days
If they do not complete the seller has the right to rescind the contract, keep the deposit and pursue the buyer for any difference in value.

56
Q

Can you take more than 10% as a deposit?

A

No - can take less.

57
Q

What would you do if you sold a property at auction and the person purchasing ran away?

A

Try to find them
Call my client, tell them what has happened, advise them of three options
- go to underbidder
- re offer at auction
- sell after auction

58
Q

How would your advice change if you were selling this property at auction today?

A

Currently with cost-of-living crisis and high inflation many consumers have less disposable income and will decrease overall sending on non-essential items and therefore affecting retail sales.

I would advise that the yield on the property may have likely have moved out as if an investor could put money into most major banks for 5% return then purchasing a property may seem less desirable.

59
Q

Why would retail be better protected against cost of debt compared to other sectors?

A

already seen a repricing of retail and rebasing of rents after the pandemic.

60
Q

How did you account for that one of your comparable sold in 2019?

A

the same tenant in a very similar surrey commuter town,

After speaking with local agents and the wider Allsop team I was comfortable that the yield profile was still relevant to the current market when I was pricing the asset.

61
Q

Your comparable in Godalming sold for 7.89% in a much better market, why was your yield better?

A

80-82 High Street Godalming was over rented so the yield was higher to reflect this risk, I established that my property was slightly better as it was rack rented

In 2019 there was a lot of Brexit uncertainty and there was a general election July that year.

Interest rates were still the same in October 2019 as in September 2021.

September 2021 was allsops biggest commerical auction since 2018 and 75% of the categlogue was retail, investor sentiment was strong.

62
Q

How did you adjust the yield to reflect the risk of WH Smith closing the stores?

A

I didn’t perceive the closure of the high street stores as a significant risk, after reading WH Smith 2021 annual report they that stores affluent locations had been performing well and high street retail was still a core focus on their business model.

63
Q

Talk me through your inspection of the property?

A
64
Q

How did you know that Godlaming was over rented?

A

has been let in 2009 at a rent of £115,000 - I cross checked the rents with comparable evidence in the local area as well as speaking to local agents who confirmed it was over rented compared to other lettings.

65
Q

How did you know the property would sell at £775,000 only a £25,000 reduction?

A

When speaking to parties who had downloaded legal documents to gage levels of interest I enquired at what level they would be interested in purchasing at. The buyers indicated they would be interested at purchasing the property at a reduced guide of £780,000. To stimulate further interest at this stage of marketing I advised the client by revising the guide price to £775,000 I was confident that this would stimulate interest.

66
Q

You mention the construction was in two stages, how did you establish this?

A

On external inspection I noticed that the west side was sat under a pitched roof and on the east side under a flat roof. I then confirmed this through reviewing the planning history.

67
Q

What era of construction is a flat roof?

A

Post war – 1950s

68
Q

Where is the prime pitch on the street?

A

was in prime pitch, next to st martins walk shopping centre, high footfall and near st martins car park

69
Q

How do Godalming, Camberley and Woking Compare to Dorking?

A

Godalming, Dorking, and Camberley Working are very similar all being affluent market towns in surrey all around 1 hour to commute to London Waterloo.

The property in Woking was situated in a more attractive pitch given that the high street was pedestrianised making it more user friendly.

I was also aware that at the time that a major regeneration project was underway in Camberley town centre which made it very attractive to investors, the property was also located in a prominent corner position.

After my research I established that Godalming was the closest comparable in terms of pitch and location.

70
Q

I can see on your Goad for Dorking that there are a lot of vacant properties, how did you account for this?

A

The vacancy rates in Dorking were higher than those in the Camberley and and this formed part of my reasoned advice as to why yields should be moved out.

However I also noted that Camberley and Woking sold in February 2021 when the UK was still in Lockdown a much more uncertain market so my adjustment of the yield was not significant.

71
Q

How did you know Godalming was over rented?

A

Tenant had been in occupation for 20 years, I analysed the rent compared to other recent lettings at the time and established it was over rented.

72
Q

How did you know the property was rack rented?

A

I compared to recent lettings included 69 High street which had just been recently let to boots for 55 ITZA as well as 58 High street which has been let to Robert Dyas which has just been let at 47 ITZA.

73
Q

What is an FRI lease?

A

where the tenant has responsibility for all external and internal maintenance, decorations and repairs as well as the liability for insuring the building.

74
Q

What does your yield show?

A

reflects the risk and growth of the investment.

75
Q

what disregards were included within your rent review?

A

tenants improvement
good will

76
Q

was your lease inside or outside the act and how did you know?

A

outside the act, there is a disclaimer within the lease.

77
Q

What were the assumptions in the rent review clause?

A

assumed hypothetical term for 5 years at market rent
property used for purpose set out in lease
property is fit and available for occupation

78
Q

What is rendering?

A

External plasterwork.

79
Q

What is the construction of the roofs?

A

pitched concrete tiled roof to the west
to the east flat asphelt roof

80
Q

What is an affordable lot size?

A

there’s a wide pool of buyers that look to purchase at this level.

81
Q

Did you undertake any statutory checks in relation to the church that is behind your property?

A

Confirmed with solicitors that there was no Chancel repair liability

82
Q

What is a Chancel of repair?

A

is a legal obligation on a small number of property owners in England and Wales to pay for certain repairs to a church?

83
Q

Difference between asphalt and felt?

A

felt is more durable.
asphalt requires more maintenance.

84
Q

Is your building listed or in a conservation area?

A

Not listed
It is in a conservation area

85
Q

How does being in a conservation area affect your property?

A

These restrict work you can normally do without planning permission such as replacing a door or window or altering gutters and downpipes.

86
Q

What price would have been achieved if you sold this property at private treaty?

A

difficult to say,

private treaty usually display an asking price that is above where a client would sell where auctions market at a level that will generate competitive bidding to achieve best price

87
Q

when would it be better to sell at private treaty rather than auction?

A

if the property was complex in terms of its legal structure so buyers would need time to carry out further due diligence.

if the most likely buyer is an owner occupier who may be relying on finance

88
Q

what is a cooling off period

A

minimum 14 days for buyer to change their mind about a purchase

89
Q

what does your disclaimer say in your particulars?

A
  • definition of guide and reserve
  • details of buyers fees
  • that lots can be withdrawn at any point before the auction
  • guide price does not include VAT
  • any arrows on the marketing particulars are not identifying legal boundaries.
90
Q

Why in your particulars does the guide price say £800,000?

A

They were the original marketing particulars with the guide prior to reducing.

91
Q

In Camberley your property was let to a bank solid covenant and had potential to redevelop the upper floors

you only increase the yield by 50 basis points was that enough?

A

Camberley was sold in February 2021 when the UK was still in lockdown in a much more uncertain market therefore based on the comparable evidence I established that 50 basis points was appropriate.

92
Q

What was the net effective rent?

A

£61,775

93
Q

I have seen a news article that WH smith lost 280m during covid, was this not a weak covenant strength?

A

I reviewed the company report published by WH Smith in August 2021 and noted the following points

  • company has online presence such as whsmith online funky pigeon.com diversified
  • sales / footfall on the high street had increased since lockdown lifted
  • travel / tech store aspect of the business

Mia Bourne APC Revision (36 decks)

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