Case Study

Question 1

TWhat was the construction of the castle wood unit?

Answer 1

Steel portal frame which bolts together steel columns.

Steel profile cladding on the wall and roof with translucent panels for light (15% are roof lights)

Grade A offices - including two storey offices. Glazing and windows. Concrete stairs. Lift. Raised floor and suspended ceilings.

Fire proof cladding. Level access doors and levellers.

Fire exit doors

Yard is concrete with permitter fencing around yard and gatehouse.

Question 2

Is the road adopted or public’s

Answer 2

The road is owned by the original developer who still owns the infrastructure road and surrounding landscaping.

Impact of this is included within service charge to keep good

Question 3

The office?

Answer 3

Constructed also of concrete frame and a extension of the warehouse.

Flat roof with cladding
Glazing
Profile steel cladding
Raised floors
Suspended ceilings
Kitchens
Toilets
Lift

Question 4

Upon inspection what did you have regard to?

Answer 4

Firstly health and safety.

When inspecting I had regard to the external area as I was marketing the property so factors such as access, transport, any marketing boards.

Also had regard to the external and internal - snagging process, this has been done but our construction team however I noted things as I went round to check they had been picked up.

A couple of things I noted such as paint touch ups. And a missing ceiling tile.

Question 5

Did you develop these units?

Answer 5

No these were a forward fund arrangement between Glp and another developer.

Glp is also an investor.

Question 6

What is a forward fund deal?

Answer 6

Another way for a developer to get equity where parties agree to sign a purchase agreement prior to completion of the works.

The borrower will borrow money to develop and construct the warehouse for a fee.

Glp owned it upon practical completion.

Question 7

Was was the arrangements of the forward fund deal

Answer 7

?

Question 8

What are CAT A offices?

Answer 8

CAT A is for out is basic finishing to interior such as installlation of lighting, aircon, raised floors, toilets, kitchens and reception areas.

Question 9

How is industrial catergorised by cat -a?

Question 10

If you were agency side how would your work differ

Answer 10

Check competence like I do now
Check personal interest like I do now
But issue terms of engagement and made sure I recieved written terms back and signed

Question 11

How would you undetake a conflicts of interest check?

Answer 11

Check if I have any personal relationships with the client or asset.

Check internally if the firm has any connection by emailing the staff and database check

I used conflicts of interest 2017 progressional standard as my guidance and mandatory rules

Question 12

What are the three conflicts of interest

Answer 12

Personal interest - conflict with a personal interest

Party conflict - duty to act for client conflicts with other conflict

Confidential information conflict - conflict between the duty of a member to provide information to one client but duty to another client to keep it confidential

Question 13

So what was the position of the proposal had you issued a previous proposal?

Answer 13

?

Question 14

What was the marketing strategy prior to completion? And how did this change once complete?

Answer 14

Prior to completion:
- monthly HTMLS with updated construction progress
- marketing board outside of units and on road
- brochures and website which is linked to monthly social media posts

Once pc’d
- launch event upon practical completion
- html inviting agents and thank you for coming
- along with monthly htmls on availability
- brochure mail out to agents and list of customers - public available information

Question 15

Why was the void so long

Answer 15

The void was standard for this size of the unit within our business plan we allow 10 months but our aim is to let prior to pc.

Given it takes a few months to get a deal over the line I had awareness of this when negotiating the deal for GLP.

Question 16

How do you conduct yourself with new customers?

Answer 16

Engaging and friendly
Professional
Approachable for any questions they may have.

Question 17

How did you conduct yoursef in the negotiations

Question 18

What does Glp business plan consist of

Answer 18

Business plan is for the purpose of our fund management team who are our internal clients as such. To update them on what we plan to build develop and estimates for leasing in order to benchmark returns and profits

Question 19

What is the benefit of the business plan

Question 20

What is a development appraisal

Answer 20

a method used to understand the profitability or viability of a development scheme

Question 21

Why did you use a development appraisal

Question 22

What does speculative build mean

Question 23

What costs did you include within the appraisal

Question 24

What does covenant mean and why is it important

Answer 24

Covenant assesses debt to equity ratio. Understanding of a businesses financial standing and its ability to pay its rent.

Question 25

What does a d&b report include?

Answer 25

risk evaluation (risk indicator, d&b rating, failure score, net worth, pyament behaviour, information on principles, managers, corporate linkage, financial summary).

Question 26

What else could you use for credit check

Answer 26

companies house accounts, or another third party company such as experian.

Question 27

What would you do if the risk was high and how would it change your proposal

Answer 27

If the D&B report was at risk, I would request their accounts and company structure chart and refer to our accounts team. I would advise GLP we would need to obtain some sort of security such as a PCG, Rent deposit or bank gurantee.

Question 28

Why do you need an accountant to verify the work

Question 29

What yield were you trying to identify

Question 30

Why did you need to use a yield

Answer 30

to capitalise the income

Question 31

What is your process for collating comparable’s and do you have regard to any guidance

Answer 31

Rics professional standard - comparable’s evidence in real estate valuation 2019

Question 32

Why is it important to verify third party data

Answer 32

Very important, in order to provide a diligent service as a surveyor and take responsibility.

Question 33

Why was there lack of trades stock

Answer 33

Recent interest rate rising so cost of debt increased. Also pricing was difficult when market is uncertian as prime yields can’t be defined - check this one

Question 34

Was there limitations to extending your search area?

Answer 34

Ideally, getting comparables as close to the subject property is best, however, having regard to the logistics market and how it works on prime logistics junctions or motorway corridors, it didnt actually affect my study.

Question 35

What information remained confidential and how did it affect your study (comparables)

Answer 35

some rent frees remained confidential, therefore, implication on the NER. HOW DID I ADJUST FOR THIS?

Question 36

What was the timeline of the valuation and why was it too long?

Answer 36

valuation usually takes 3/4 weeks in this instance I asked our external valuers to value the proposed income, given their workload and the instruction to go back to the tenant within 24 hours, the valuers could not provide this within the time frame.

Question 37

How did you establish market rent

Answer 37

Under VPS- 4 Basis for Value - definition RICS Professional standard - comparable evidence in real estate valuation - 2019. schedule comparable evidence for similar size, specification, etc. Assess net effective rent, adjust for hierarchy of evidence (different weights), form opinion of market rent.

Question 38

How did you work out the Net effecitve rent?

Answer 38

devalue the headline rent with rent free period to produce net effective rent., straight line basis until end of lease or next lease event. (rent x term) - (rent x rent free) / term you can also use a DCF

Question 39

What are the consequences if you don't meet your target void period?

Answer 39

After 6 months of empty tax relief, liable for business rates on the unit. No other complications other than continued payment of security, service charge etc which is unaccounted for in the business plan therefore, more cost attributed than expected.

Question 40

Why had interest rates risen?

Answer 40

Bank of england set their base rate to 5.25%, to help slow down inflation. at the beginning of 2021, the base rate was 0.1%. High interest rates reduce the amount people spend in the UK which causes inflation to decrease.

Question 41

market testing - what is the value in this?

Answer 41

accurate understanding of how the asset would trade in the open market.

Question 42

why did you decide to reject market testing

Answer 42

Would of exceeded my directors time aspirations of getting back to the customer within 24 hours. confidentiality - tenant wouldnt want their details out in the market, as the deal wasnt confirmed.

Question 43

why did you decide to progress with Option A and Option C combined?

Answer 43

I needed to provide evidence to my director in order to provide a high level service. But it was good to sense check given the lack of recent traded stock, so it was important to check with external advice.

Question 44

Why did you give particular weight to the Burton on Trent deal?

Answer 44

Similar size unit, slightly poorer specification but good covenant, decent term till expiry. Good location as similar to castlewood. excellent connectivity to the rest of the midlands Castlewood offered long term income, to good covenant and good specification therefore, would likely have a more compressed yield.

Question 45

why did you also give weight to movianto tamwork

Answer 45

slightly older traded unit, but similar in specification, size, lease term, rent review. - Was aware the market had moved out slightly however a good comparable. Strong covenant. Prodrive banbury also offered a good comp at 5.60% - different location but still fairly prime.

Question 46

what else did you have awareness to when selecting yield?

Answer 46

also prime yield for the east midlands on 15 year lease was 5.00%. having regard to this, and that this investment would be at a slight discount to prime yield. Asked agents advice who confirmed 5.25%

Question 47

walk me through how you did the development appraisal

Answer 47

Calculate GDV - based on annual rental income capitalised at the yield (rent x YP). costs fixed. marketing costs. Work out profit (gdv- costs) profit on cost ( profit/cost) yield on cost (rent/cost)

Question 48

why did you not assume finance ?

Answer 48

was not within my instructions

Question 49

what profit on cost did you achieve at the tenants offer

Answer 49

11% - not acceptable to the business plan. Having regard to the market, the terms were below market on rent, and rent free for that lease term therefore, there were way to achieve a higher value for my client.

Question 50

why would extending the lease term result in a compressed yield?

Answer 50

less risk of the vacancy and void period. strong covenant. OMV was agreed.

Question 51

How did you see what the tenant wanted?

Answer 51

I approached the tenants agent and discussed the proposition of accepting the 21 months rent free but explained how this was more in line with a 15 year lease. agent said they could be open to the 15 year lease given the amount of fit out they were undertaking and investment into the property

Question 52

rent free -

Answer 52

business plan assumption was 12 months on a 10 year lease, therefore, more closely resembled a 15 or 20 year lease the 21 months rent free. Tenant was open to potentially a 15 year lease with no break but would not consider a 20 year lease.

Question 53

what did their fit out include?

Answer 53

- racking - chilled areas to store some pharmaceutical - mezzanine would take a number of months to fit out and expensive so having a large rent free would help their cashflow.

Question 54

were there many available units in the area?

Answer 54

In the east midlands their were a considerable number of units in this size bracket. there was still good demand but given competition didn't want to lose the customer. There was also a the unit across the road the customer could go too.

Question 55

how did reducing the rent free to say 12 months impact the profit margin?

Question 56

what the market rent you established

Answer 56

market rent was north of 7.75 and established it was more in the region of 7.50 given the recent evidence on the Castlewood business park and rising market. How much had the market risen within the 12 months - looking at the PMA report which is issued bi annually in October and April, the market had risen by 6.9%.