Level 3 - Avonmouth

Question 1

Tell me about this Property?

Answer 1

Main industrial area in Bristol
1990s building, steel portal frame with profile metal cladding, glazed front reception and two storey office accomodation
10,000 sq ft
eaves 5.75m with yard space and site cover 35%

Question 2

What is a long leasehold interest?

Answer 2

A freeholder owns the property/land. but someone else has the rights to use it, contained within a lease.

Question 3

How big was the property?

Answer 3

10,000 sq ft

Question 4

How does the property tenure impact suitability for loan security?

Answer 4

Ensure the bank has interest in the property during the loan

Question 5

What unexpired term would cause concern?

Answer 5

60 years

Question 6

Talk me through your MV approach?

Answer 6

Investment method
Collated evidence across comparable locations of single let sales
NIY basis as that is what comparables were on
Yields ranged between 5.5% - 7.67%
Discussed evidence with colleagues
capitalised MR of £8.00 psf income at 7.25%

Question 7

What was your comparable search criteria? MV

Answer 7

Comparable FH or LLH investments in good industrial locations.
Strong Tenant covenant
Specification features and size

Question 8

What was your Market Value?

Answer 8

£1,650,000

Question 9

What adjustments did you make from your comparables?

Answer 9

Comparables were FH - less risk
Specification - some superior
Tenant Covenant
WAULT - longer unexpired term

Question 10

How did you calculate WAULT?

Answer 10

Single let - so just remaining time to lease event

Question 11

How did you determine the reasonableness of the loan?

Answer 11

I cannot advice on if a bank should facilitate the loan
I advised on the properties attributes and value that would provide reasonable suitability for loan purposes

Question 12

What was your yield?

Answer 12

7.25% Equivalent

Question 13

What was your Market Rent?

Answer 13

£8.00 psf

Question 14

What was the unexpired term of the LLH?

Answer 14

93 years

Question 15

Why does the length of bank loan matter?

Answer 15

The bank loan was 5 years
If loan longer than unexpired term, it would not provide security as borrower is no longer has an interest in the property

Question 16

Why is 88 years an adequate amount after the term of the loan?

Answer 16

Lenders may have caution about lending to short unexpired terms due to the risk of marketing if they had to repossess the Property

Question 17

Did you find any LLH comparables?

Answer 17

I found one LLH evidence in Gloucester.
It was a sale that had a new lease in place, a longer unexpired term and good covenant.
It was better specification
Yield of 5.5%

Question 18

What adjustments did you make to FH comparables?

Answer 18

I deemed FH comparables less risky due to not having a long lease present.
FH less risky because purchaser has sole rights over it
No ground rent
Reflected in yield profile

Question 19

Why was it only reasonable security for loan? Why not good?

Answer 19

Due to the inherint risk of an LLH with a diminishing unexpired term

Question 20

Tell me about your valuation in Avonmouth for Loan Secuirity Purposes

Answer 20

Point 1 – I valued a LLH industrial asset in Avonmouth with an unexpired term of 93 years with a loan term of 5 years
Point 2 – I used the investment and comparable method to determine MV and making suitable adjustments for FH evidence
Point 3 – I outlined the property was suitable for loan security however outlined adjustments based on specification and unexpired term. Producing a 7.25% equivalent yield and £1,650,000 CV