Q.1
‘Property should always have a place in the multi-asset portfolio, wherever we are in the economic cycle, as long as the investor sticks to the main commercial property investment sectors.’
Discuss the validity, or otherwise, of this statement.
Word limit: 1,000 words
Assessment Criteria
In answering this question students will be judged on how well they:
| Criterion | Marks attributed |
| Demonstrate a knowledge of the characteristics of investment property compared to other types of investments | 30 |
| Knowledge and understanding of economic and property cycles and how these can relate to investment strategy | 20 |
| Demonstrate knowledge and understanding the different types of property investments | 20 |
| Ability to create and good argument | 10 |
| Quality of written English and use of appropriate Harvard referencing | 10 |
| Demonstrate that they have undertaken extension reading | 10 |
| Total | 100 |
Suggested reading:
To support this assignement students are advised to read :
Baum, A (2015) Real Estate Investment: A Strategic Approach Routledge
Baum, A. E and Hartzell, D (2012) Global Property Investment: Strategies, Structures and Decisions Wiley—Blackwell: Oxford chapters 1 and 13.
British Property Federation Property Data Report 2016
DTZ: Money into Property 2014 and 2015 ( on Moodle)
Isaac, D and O’Leary, J (2011) Property Investment 2nd Edition Palgrave Macmillan
Jowsey, E (2011) Real Estate Economics Palgrave Macmillan
Myers, D (2011) Economics and Property Routledge
Q.2
You are asked to advice a potential investment purchaser on a reasonable price to offer for the Cedar House, an office building. The freehold interest for sale. The property comprises a 2 storey office building constructed in 2004 on Ground and First floor. It was constructed to a ‘reasonable’ specification but is in need of some refurbishment which is best undertaken when at the property (or part of it) is vacant . The Ground floor is let as indicated below. The first floor is currently vacant as the last tenant left two months ago but no works of refurbishment have yet been undertaken. The lease of the ground floor is on internal repairing and insuring terms. The landlord is responsible for the common parts and external and structural repairs but there is a service charge to cover all outgoings. Rent reviews are upwards only.
| Area | Tenant | date let | Term | Rent Reviews | Rent passing | ||
| Ground | 200 sq metres | Global services, a well established consultancy | April 2014 | 15 years | April 2019 and April 2024 to full market rent | £400 per square metre | |
| First | 300 square metres | Vacant | last rent passing was £350 per square metre |
You are aware of the following information:
· Laurel Court: A freehold brand new office building close by has recently let at a rent of £500 per square metre but with a one year rent free period. The term was 5 years and the building is much bigger as it is 1,000 square metres. Following the letting it sold off an intial yield of £5.2%
· Oak House: Another office, again freehold, this time with a floor area of that is also close by was also let recently, this time for a 5 year term. It is older and in need of some modernisation. It achieved a rent of £450 per square metre but with a one year rent free period.
· Sycamore Court: Is similar to Cedar House in specification and size but is let on an historic rent of £350 per square metre. The lease is due to expire in 3 years.The freehold has just sold off a yield off an initial yield of 4.6%.
Your Task
a) Analyse the 3 pieces of comparable evidence given to provide a reasoned estimate of the current estimate market rental value for Cedar House and an estimate of the appropriate all risks yield.
b) Use this information to provide a valuation of Cedar House.
c) Write a brief report to your client advising as to a proposed purchase offer price, with an explanation as to how you have arrived at your figure and calculate the initial and reversionary yields they would achieve if they purchased at that figure.
d) In your view, given what you know about the London office market, is this likely to be a sound investment? Give reasons for your answer . to do this you are advised to read some of the reports of the major consultancies regarding the prospects for the London office market.
Assessment Criteria
In answering this question students will be judged on how well they:
| Criterion | Marks attributed |
| Analysis to find rental value of Cedar Court | 15 |
| Analysis to estimate the All Risks yield to apply | 15 |
| Valuation of Cedar Court | 20 |
| Quality of written report and explanations | 15 |
| Calcuation of initial and reversionary yield | 10 |
| Knowledge of London office market and views thereof | 25 |
| Total | 100 |
Suggested Reading:
To undertake this assignment students are directed to:
Blackledge, M (2009) Introducing Property Valuation Routledge
ipmsc.org/standards/office/
Isaac, D and O’Leary J (2011) Property Investment Palgrave Macmillan
Isaac, D and O’Leary J (2012) Property Valuation Principles Palgrave Macmillan
Sayce, S., Smith, J., Cooper, R and Venmore-Rowland, P (2008) Real Estate Appraisal: from Value to Worth Blackwell
Scarrett, D and Osborn, S (2014) Valuation: the five methods Routledge
Shapiro, E. Mackmin, D. and Sams, G (2013) (11th Edition) Modern Methods of Valuation, Estates Gazette – Routledge
Market analysis reports of major consultancies such as CBRE, Cushman and Wakefield, JLL and Knight Frank (this is not an exclusive list), together with publications from British Property Federation and Investment Property Forum.
