Investment Management

Question 1

Walk me through the Business Park Surrender and Re-let? (BBP)

Answer 1

• Engineering firm in a 12,000 sq. ft unit wished to downsize to 4,000 sq. ft
• Healthcare tenant had a similarly timed break option wished to go fully remote
• Negotiated a 10-year term with TBO in 5th year, 12 months rent free, £24 psf vs £23.50 ERV
• Outside the 1954 Act

Question 2

What issues did you have to overcome with the Surrender and Relet (BBP)

Answer 2

• Non simultaneous break options (GKN had to be on a tenancy at will)
• Dilapidations claim for GKN - £187,000 - They wanted to settle the dilapidations claim after their lease completes
• GP Strategies paid a £50,000 break penalty

Question 3

Summarise how you analysed the CAPEX spend at Larkfield (Multi-let Industrial, Kent, CAPEX)

Answer 3

> Compared the valuation once the property is let post refurbishment with the current valuation

Valuation post refurb:
> ERV post refurb capitalised at let yield
> £14.25 psf @ 5.50%
> Less lost income due to void and ERV (9 month void 3 months rent free)
> Less Cost of works (£30 psf)

Current Valuation:
> Current ERV capitalised at vacant yield
> £12.00 psf @ 6.50%
> Less lost income due to void in valuation ( 6 month void and 6 months rent free)
> Less CAPEX in the valuation (£10 psf)

ROI = Valuation uplift / Capital expenditure
> ROI of 190%

Question 4

What was the business plan for the unit? (Multi-let industrial Estate, Kent)

Answer 4

> EPC B only refurb (No internal or external redecoration)
Re let at £12.00 per sq. ft
12 month void, 6 month rent free

Question 5

What did the sensitivity analysis show?

Answer 5

> If the leasing void increased to 24 months the ROI dropped to 123% (all else being equal)

> If the build costs doubled, ROI dropped to 56%

Question 6

How did you analyse the minimum rental level for the New Lease, Tunbridge Wells?

Answer 6

> Cashflow of the proposed letting given a 15% un-levered IRR hurdle
15% IRR was determined due to the Value-add risk (non-core location in an out of favour sector)

> Build costs of £100 psf (£86 psf build costs + fees)
Including CAT A+ due to pre-let nature (carpet tiles, extra floor boxes etc)
7,000 sq. ft unit
3 months construction void, 9 months rent free
£33 psf initial rent
ERV in the valuation of £27.50 psf (12 month void and 12 month rent free)
£40 psf of capex in the valuation
High service charge of £19 psf as the air conditioning and boiler were approaching their end of life.
Initial IRR of 17%

> Sensitivity was then run on the rent and rent free level
Opening offer of £35 psf and 9 months rent free