Valuation Level 3 - Retail Unit - Barnes Flashcards
Describe the Property
Ground floor steal framed retail unit in Barnes with single glazed frontage operating as a cafe.
internally the property had been fitted out to a very good standard.
How did you value this property?
The property was let with a short unexpired term of one year
I used the investment method of valuation to value the property
I spoke to local agents and looked at recent lettings in the area. I understood that my property was under rented and calculated the market rent.
I looked at recent investment evidence to obtain the reversionary yield.
I applied a lower net initial yield than my comparable evidence and capitalised the rent for the term until expiry. I then accounted for a 12 month void including marketing and incentives.
I applied a reversionary yield to the market rent and capitalised into perpetuity. I deferred this income to the date of the valuation.
Talk me through the valuation?
I was instructed on behalf of a client to value a ground floor retail unit in Barnes for Loan security purposes.
I undertook a conflict check, and ensured I was competent to undertake the valuation.
I issued terms of engagement, once signed I inspected the property.
I collated comparable evidence speaking to local agents in the area as well as from co star and allsop auctions.
The retail unit had one year unexpired term and the property was under rented. I adopted the investment method of valuation using the term and reversion methodology applying a stronger yield to the term.
I completed a SWOT analysis with my advice and recommended that the property was suitable for loan security purposes.
Why might short income concern a bank?
it may affect how much they will lend if the borrower is subject to a property that is not income producing.
however in this case the tenant had spent a lot of money on the fit out, I also was aware of conversations of a lease renewal from speaking to the property manager.
therefore my advice to the client was that it was low risk, as even if the tenant did not renew which was unlikely there was high demand from local occupiers for cafe space in Barnes and therefore unlikely to have long voids.
What did your yield profile look like?
Net initial yield was lower as the property was under rented, reversionary was higher and in line with my market rent comparable evidence. Equivalent yield sat in between.
When would your equivalent yield not sit inbetween?
Long void periods (below)
Stepped rent (above)
How did you net initial yield differ to your comparable evidence?
net initial yield of comparable were higher because they were rack rented, and the subject property was under rented.
How did you make an adjustment to your comparable evidence?
I made an adjustment to the net initial yield that I applied to the subject property to account for the fact it was under rented.
Why was your initial yield lower?
return of the investment was lower that it should have been, less income.
What were the yields like on your comparable evidence?
the comparable evidence had transacted very close to the valuation date therefore the net initial yields on the comparable reflected the reversionary yield that I applied to the property.
How do you do a term and reversion?
Term capitalised until the next review / expiry
Reversion to market rent valued in perpetuity at a reversionary yield
What advice did you provide?
through my SWOT analysis I advised my client that
S - Barnes is an affluent location and therefore attractive to investors. I also advised that the tenant had fitted out the unit to a very good standard and there was conversations that the tenant wanted to remain in the property.
W - The one year unexpired term.
O - Opportunity to relet or renew the lease at a higher rental value
T - high interest rates moving yields out and lowering investor sentiment.
What yield did you apply to the term?
6%
What yield did you apply to the reversion?
6.8%
What yield did you apply to the EY?
6.7%
