Valuations Flashcards
(135 cards)
1
Q
What are three typical features of a late 19th century office property
A
1) masonry
2) arched
3) decorative elements (turret)
2
Q
What is the valuation impact of a building being listed or in a conservation area?
A
Greater restrictions and costs
3
Q
What is one thing you may need if a property was in a flood risk zone?
A
A flood risk survey
4
Q
What is the market normal specifications for a property in Soho?
A
Suspended ceilings and raised floors
5
Q
Where the walls inside Great Marlborough Street, structural
A
Yes, they were so you would include in net initial area
6
Q
How which model zones on AE
A
Split them up in the area schedule and attach weightings
7
Q
Would you ever use different cap rates per floor?
A
No
8
Q
What is IVS 105?
A
It outlines the three approaches cost, market and income
9
Q
What is the impact of a higher base rates on investors?
A
They may target higher yielding assets
10
Q
What are typical loans for a real estate investor
A
Five years
UK swap rates plus a small lending margin
11
Q
What does without compulsion mean in market value?
A
Neither of the parties were forced into the transaction
12
Q
What are three things that the Valuation Registration Scheme (VRS) says clients should be able to expect?
A
1) Transparency
2) Expertise
3) Compliance with IVS
13
Q
What is VPS 5
A
Methods - you should consider the asset & purpose of the valuation
14
Q
What is VPS 3?
A
Reports -
Clarity on conclusions
Dealing with everything in ToE
Meet IVS reporting standards.
15
Q
What are 3 things included in PS 2?
A
1) Objectivity
2) Expertise
3) Previous Involvement
16
Q
What is the current base rates and inflation rate?
A
4.5% and 2.5%
17
Q
What are three examples of special assumptions
A
1) Assuming that’s a property is vacant when it is actually fully let
2) assuming that planning has been accepted when it actually has not yet
3) assuming that building works have been completed when they actually have not yet
18
Q
What does PS stand for?
A
Professional standards
19
Q
What does VPS stand for?
A
Valuation, technical and performance standards
20
Q
What does VPGA stand for?
A
Valuation practice guidance applications
21
Q
What is the case law for permissible margin of error?
A
KS Lincoln vs CBRE
22
Q
Where would you find flood risk?
A
On the government portal
23
Q
In basic terms, what is a yield?
A
It is a measure of investment return expressed as a percentage of capital invested
24
Q
What is an all the risks yield?
A
Remunerative rate of return for fully let property let at market rent, reflecting all the risks attached
25
What are the stamp duty tranches?
Up to 150K - Nill
150k to 250K - 2%
Above 250K - 5%
26
What is an alternative to credit safe?
Dun & Bradstreet
27
Why is the date important for comparables?
It reflects the most current market conditions and trends
28
How much storage dealt with when zoning
Storage would typically be in the basement rather than the trading ground floor and the basement is treated as 1/10
29
What is a five statutory considerations for a valuation?
1) EPC
2) Planning applications
3) Business rates
4) flood risk
5) Conservation area
30
What is a disadvantage of credit safe?
It requires payment
31
Why is equivalent better than layer and hardcore?
Equivalent yield is how the property would be appraised in the market
32
When would leasehold property not be suitable for loan security?
65 to 70 years left
33
What are three examples of things found in a report on title
1) leasehold vs freehold
2) rights of way or easements
3) restrictive covenants (e.g., obligation to maintain facilities that doesn’t benefit the property directly)
34
Would you expect discounts or premium for space inside one building?
Can go either way
May I pay a premium for privacy, but would depend on there being a sufficient number of interested buyers in the market
35
Why send a draft report?
It’s about client care
You provide the opportunity to review everything
You can change the value, but only if supported by evidence
36
What are some DCF inputs?
Rental Growth
Void period
Discount rate
37
How is the discount rate selected?
UK gilt plus appropriate risk premium
38
When you target an equivalent yield what should you also sense check
NIY and Reversionary Yield
39
What are typical LTVs for a commercial loan?
50 to 60%
40
What are fair value and market value generally the same in terms of?
Methodology
41
When were the property be classified as virtual freehold?
If there was originally over 900 years on the lease
42
How many further cuts to the base rates expected this year and where would that take it to?
Three
3.5%
43
Who is the liability cap and PII excess agreed between
Liability cap - JLL + client
Excess - JLL + insurer
44
What does an ungeared IRR mean?
No debt
45
Apart from financial reporting and secured lending, what are the valuation purposes?
Shares (like British Land REIT)
46
What is something you would consider for an industrial valuation?
Motorway access
47
When may refinancing happen?
When original loan has come to an end to borrow it still within preferred holding period
48
What is a 5-year SONIA swap rate and what are they currently “?
Markets interpretation of expected interest rates over next 5 years.
3.75%
49
If there is a shortfall between ground rent liabilities and income for the borrower, what would the bank need to be assured of
Adequate funds to cover this
50
How could you find more evidence upon review?
Unless JLL was tracking the deal, new deals may have not become public immediately
51
Why did you not use DCF?
Straightforward and plenty of evidence
Investors would not appraise that asset using DCF
52
When do you incorporate letting fees?
At every new lease
Before the rent free
53
Were there any special assumptions for Mayfair and St James’s L3 retail?
Only Vacant Possession Value (VPV)
54
How much of an adjustment in layer and hardcore
Varies. Could be 3%
55
When could the report on title be from?
The last time the property sold
56
What would a classic conflict be in accounts valuation?
If valued for loan security within one year of accounts valuation
Pressure to support ban valuation
57
With terms of engagement, what did you draft?
Those aspects within my boundary of competence
Overseen by my supervisor
Legal aspects overseen by legal and compliance
58
How do we get to PV from future income streams?
Discounting through the yields
59
How would valuation be done if you didn’t have AE?
Excel
60
Where would you ideally get refurb costs from?
The client as more likely to be accurate
61
Difference between development appraisal and residual
Developers profit vs land value
62
Was the market value suitable for the whole of the loan?
As part of ToE JLL recommends only lending a proportion of the value as per market practice
63
What does IFRS stand for?
International financial reporting standards
64
Is there any benefit to a property being overrented
Provides better short term income
65
Does BCIS have a freshen up option
No, it has fit out existing buildings which provides a steer
Ultimately, spoke to expert colleagues in JLL
66
Would you need to increase the void period for refurb works?
No, not for a light touch, freshen up
67
Do you grow capex assumptions with inflation
No traditional valuation is growth implicit
68
What is the difference between a grade A and grade? B space
Grade B is older and less modern
69
Were there any conversations about reletting on the example with 14 months left on the lease?
No
70
Why did you not to use natural zoning?
It is not common practice, and there weren’t obvious zones (like steps down)
71
Did you zone comps?
No agents provided zone A rents.
The message was in line with market practice and my assumptions
72
Would the NIY and RY be exactly the same on overrented properties?
Yes, as long as you weren’t explicit on expiries
73
If you had income from occupational lease and ground rent from sold off uppers which would have the keener yield
The ground rent as long-term and guaranteed
74
Did you consider residential values?
Not viable due to high costs associated with reconfiguration and problems with fire safety escapes
75
What would you do if you are unable to get to the internal wall because of a fit out when measuring retail
There will usually be an access point or a gap in partition to focus laser
If not make a 2% adjustment
76
What is happening in the market with zoning?
It is beginning to come back to even weaker high streets as the retail market gets stronger
77
Is zoning used in shopping centres?
Not often, but starting to come back a bit
78
What is the advantage of zoning?
It allows shops on the same high street to be better compared
79
Are retail warehouses zoned
No
80
What was the situation of the resi above your great Marlborough Street retail valuation?
It was on a long leasehold of 100 years with no ground rent
81
How much of a discount for VPV for central London retail
0.75% to 1.00% for prime
82
What would the worst case scenario be for a VPV with retail
1.50%
83
Interest rates:
During Covid
After Covid
Since Covid
Future
During Covid - cuts to encourage spending
After Covid - increases to discourage spending (inflation)
Since - 3 cuts (my time in vals)
Future - 3 more curs expected this year (taking it down to 3.5%) but could tariffs threaten that?
84
What does elevated cost of debt sometimes cause investors to do and why?
Movement towards higher yielding assets to compensate for elevated cost of debt eating into returns
85
What are the three types of obsolescence?
Functional (no longer supports its function)
Economic (changing market conditions)
Physical (wear and tear)
86
Why are there 30 feet zones for some high streets?
Super prime so more value attached to the front
87
How do you reflect elevated cost of debt in valuation?
Explained in the market commentary section
88
Were there in a VP comes for retail in St James’s and Mayfair
No
Used the investment method assumed void period and discounted my yield
89
When would you use:
Profits Method
Residual Method
DRC Method
DCF (investment method)
Profits - trade related property where value is linked to business profitability
Residual - when you are trying to determine the value of land
DRC - last resort for specialised properties
DCF - when that is how an investor would appraise the particular property e.g. short leaseholds
90
What is the basic methodology for the Profits Method
3 years of audited accounts to determine the Fair Maintainable Turnover (FMT) of a Reasonably Efficient Operator (REA)
Deduct costs to reach the Fair Maintainable Operating Profit (FMOP)
Capitalise income at a yield derived from comps
91
What is the basic methodology for the Residual Method?
Determine Gross Development Value (GDV) using comps (income/cap rate)
Subtract developers costs (including architectural costs & developers profit)
Amount remaining = Residual Land Value (RLV)
92
What is the basic methodology for DRC
Determine the cost of building a Modern Equivalent Asset (MEA)
Depreciate for obsolescence (functional, economic, physical)
Add to the cost of land = value
93
What is the basic methodology for DCF?
Select discount rate for ALL cash flows
Estimate cash flows for the holding period
The final cash flow will be the exit value derived from trad val
Sun of all cash flows = NPV
94
What factors go into the discount rate for a DCF?
Market and property risks
95
What does it mean if the NPV is positive or negative?
1 or above = returns > costs
0 = break even
-1 or below = costs > returns
96
What is the IRR?
Internal Rate of Return.
The discount rate whereby the NPV = zero
97
Why is the front of the retail unit more valuable?
Greater pedestrian flow and dwell time
98
What is the difference between a bilateral and syndicate loan
Bilateral = one lender
Syndicate = multiple lenders
99
What yield used for hardcore/ term and reversion?
ARY for Market Rent.
Adjustment for overrented/ reversionary income
100
What is the purpose of the Valuer Registration Scheme (VRS) (3 things)
1) improve quality of valuations
2) meet RICS requirement to self regulate
3) protect the status of the valuation profession
101
Do you need to pay to be part of the VRS?
Firms pay annual fees based on number of valuers
102
How many recommendations were made by the Independent Review of Real Estate Valuations (2021)? What are 2 examples?
13
Use of DCF as primary model in investment valuations
Rotation of valuers
103
How were the 13 recommendations implemented?
In the 2023 National Supplement
104
What is the difference between an internal and external valuer?
Internal valuations cannot be relied upon by third parties
105
Would you expect a higher rents on long or short income?
Short income as committed to a lesser term
106
Where is Material Valuation Uncertainty in the red book?
VPGA 10
107
According to VPS 5, what can the valuer use to decide which model to use?
Professional judgement
108
What is one conflict that is outlined in VPGA 2?
Long-standing relationship with the borrower
109
What should the caveat be with BCIS?
If client wants to rely on it, they should use a building surveyor
110
Are most comparables reversionary?
Yes
111
What would a typical discount be on an office for a VPV?
25-50 bips
112
Why was the value questioned?
Another valuer had provided a higher value in a previous instruction
113
What determines whether UK GAAP or IFRS 13 should be used for Fair Value?
Clients accounting regime
114
Do UK GAAP and IFRS 13 result in different figures?
Not in most cases
115
When do you get refurbishment business rates relief?
Only when the refurbishment is substantial
116
Does a special assumption need to be reasonable?
Yes
117
What would you do if you didn’t have access to credit safe?
Check profits cover 3x the rent
118
Does bilateral or syndicate loans change the valuation approach?
No
119
What do we do when we revert to the market rent at a rent review and why?
Net effective as this is typical in the rent review
120
What value had the other valuation house put on the property versus us?
£10.3M vs £10M
3% and within the usual variance of subjectivity
121
Stamp duty tranches
Agents fees
Legal fees
Up to £150K = nil; £150K-£250K = 2%; Upwards of £250K = 5%
1% (plus VAT)
0.5% (plus VAT)
122
Lettings fees
15% of Market Rent
123
How many years remaining for Mayfair, St James’s (refurb), and all others?
18 months
3 years
5 years +
124
Which two properties had less established retailers?
What did all the others have?
Spitalfields & St James’s (retail)
Established retailers/ officer occupiers
125
What do you need to provide when registering for VRS?
Number of valuations, purpose of valuations, and type of valuations
126
What comps for Mayfair and St James’s retail?
Had comps for second-tier locations (after Bond Street)
Mayfair one that also had short income at around 4.5%
St James’s more of a discount was appropriate
127
What is the term with regards to the most value from a property?
Highest and best use
128
What would an S and G (ESG) consideration be for valuation according to the Red Book?
Location (connectivity)
DEI (inclusive environment)
129
What are standard floor to ceiling heights?
2.6m to 2.8m
130
What does credit safe tell you?
Risk of default or bankruptcy within 12 months period
131
What were Zone A rents and yields in cheapside?
£150 ITZA
7%
132
Bond Street, Regent Street and Oxford Street prime yields
Bond - 3.00%
Regent - 4.25%
Oxford - 4.50%
133
What would you do if there was an outstanding planning application?
I would value in current use as you cannot make special assumptions when valuing Fair Value
134
What would you do if there had been price movements since transaction date?
Place slightly less weighting on the comparable
135
Apart from the landlord, who else would you be mindful of when doing conflict checks on a property for a valuation?
The tenants (in case there was a rent review that we were acting on their behalf for)
