Valuation Practice Valuation Practice 2016
4PRO 501Valuation Practice
Valuation Practice 2016
Mike Pain
a) Identify oneretail or office wholebuilding in Birminghamwhichhas a floor area between 200sq m.- 5,000 sq m. This building
should currently be occupied by a single occupier or currently vacant. For the purpose of this coursework the actual lease is
irrelevant and you are to assume that the whole property is let toa single company.
b) Describe the property including stating the floor area of the premises, the ITZA if applicable and commenting on the
location, description and amenities of the building.
c) Identify comparable evidence from on line databases, agents, professional pressand/or other sources and calculate an
Estimated Rental Value for the building and a suitable All Risks Market Yield. Clearly show and explain how you have arrived
at your ERV and ARY.
d) Hypothetical Scenario 1–Assume that the property has just been let at your estimated rental valueto a tenant with a
reasonable covenant strength. Prepare a freehold valuation of the property for the purposes ofloan securityfor a bank proving
a reasoned valuation and outline the type of information you should include in the valuation report.
d) Hypothetical Scenario 2 – Assume that your retail building was let to a tenant with a reasonable covenant strength 8 years
ago on a 10 year FRI lease at a rent which is now 110% of the ERV.I.e you are assuming that the lease expires in 2 years and
that the property is currently over-rented.
i. Calculate the Market Value of the freehold interest for loan security purposes.
ii. Assumethat you act for the landlord and that the tenant has requested a new lease for 10 years at the market rent and
with a rent free period.Prepare a Discounted Cash Flow to show the NPV of the current income and outgoings and the NPV of the
proposed lease. The proposed lease should incorporate a rent free period which produces a higher NPV than the existing lease.
Assume a discount rate of 9%.
Please clearly explain the steps you have taken in each case.You can make any assumptions which you deem are appropriate but
you must clearly state all assumptions which you make.
The report must be produced and submitted by hard copy to the FABE Registry in accordance with the course handbook by
13.00hrs6th AprilApril2016
Late submissions will be penalised in the marking, which will form part of the final assessment for this module. Please keep
a copy of your work
You must therefore produce:-
1 A description of the property considering its characteristics
2 A reasoned valuation of the Estimated Rental Value and All Risks Yield
3 A reasoned valuation for a security valuationand include the information which would be needed in a valuation report.
4 A reasoned valuation on the freehold Market Value assuming the passing rent is 110% of the ERV (assume the ERV as in
2 above)
5 A reasoned Discounted Cash Flow calculating the NPV of the cash flow for the existing lease and the proposed lease
Assessment Criteria
1. Completion of the valuationsand the appraisal and understanding of the bases of valuation
2. Use, demonstration and understanding of the appropriate rents and yields
3. Illustration of and understanding of traditional and DCF valuation techniques
4. Clarity of thought, layout and logical progression with mathematical accuracy.
Self-assessment.
Using the performance criteria above, please put the following box on the front of your work indicatingwhat you consider to
be an appropriate percentage mark for your work. Bear in mind that a basic pass is 40 per cent.
Name: Self Assessment : %
Particular problems encountered:
