TRP6416 Investment Valuation: Resit brief

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This resit coursework comprises two elements, both are important:

  1. The first is that you are required to complete both your report and spreadsheets again, revising and improving them based on the feedback provided on your original Your new submission is expected to show clear evidence that you have understood and acted upon the feedback. The original assignment is reproduced below.
  2. You must also submit a paper of 500 words explaining what changes you have made to your original assignment, and how these changes have improved the assignment.

Assessment Criteria

Your assignment will be assessed against the following criteria:

  • Preparation of a valuation report conforming to all relevant mandatory requirements of the RICS, including PS 2;
  • Preparation of a valuation report clearly and professionally presented;
  • Demonstration of understanding and ability to undertake appropriate DCF techniques using excel for a specified subject property, clearly and professionally presented; and
  • Provision of clear, reasoned and evidenced advice to fulfil the client’s

This assessment comprises the preparation of:

  • a 2,000 word professional valuation report, prepared to fully accord with the mandatory guidance

set out by the RICS in the Red Book; and

  • fully working excel spreadsheets, clearly set out and formatted to a professional standard,

prepared specifically for your client’s instructions.

Your valuation must be based on the facts presented here. The scenarios set out for TRP6421 Law of Business Leases may differ and must only be used for that module.

All necessary assumptions should be made, and these must be clearly identified, explained and justified, with supporting evidence where appropriate. You must provide your client with clear, full and appropriate advice. This should be fully evidenced where appropriate. YOU MUST USE A SINGLE DCF APPRAISAL FOR THE SUBJECT PROPERTY. Within this, you may wish to set out the different income streams in different columns and include varying levels of rental growth and yields, for example, if felt appropriate.

PART 1

Your previous client, Lambchop Investments, purchased New Oxford House. Lambchop Investments has now put the property back on the market and is seeking an asking price 20% higher than the value you provided in your TRP625 valuation report. You have now been instructed by a new client, Dr Shari Lewis, who is interested in purchasing the property. In accepting this new instruction, you have spoken with the Chief Operating Officer at your firm who has confirmed that, while it is possible to accept these instructions, you must clearly comply with the Red Book in relation to a conflict of interest. Thus, you are instructed to provide your client with a valuation report, to include the following:

  • You must fully consider and comply with Red Book PS 2 Ethics, competency, objectivity and disclosures, especially sections 3 and 4 (paragraphs 3.1-3.9 and 4.1-4.3). You must set out in detail the steps that have been taken to ensure compliance and reference the relevant paragraphs in the Red It must be clear throughout the report that compliance is evident.
  • Using appropriate estimate(s) of market rental growth rates and market equated yield(s) to determine Market Value, advise your client as to whether she should purchase the property at the asking Your advice should also include an estimate of the Internal Rate of Return achievable if your client were to purchase the property at its asking price.
  • You should determine, with evidence and reasoning, an ambitious target IRR as an investment objective for your client, Dr Lewis, an investor new to the property market, but with experience in the bond market.
  • You should assess whether purchasing the property at the asking price produces the required investment You should also provide your client with an estimate of Investment Worth to enable her to achieve her investment objective of the target IRR. You should provide full interpretation of your findings and appropriate advice. You must fully refer to VPS 4 paragraph 6 and follow the IVS commentary.
  • Provide your client with full and detailed advice regarding the potential risks of purchasing the specific subject property.

PART 2

  • Floor 5 of New Oxford House has just been let on a 25 year lease with 5 yearly rent reviews to FatChanz Consultants, a firm of loss As part of the inducement to the new tenant, the rent will be set at 20% below the MR for the first 10 years of the lease. FatChanz Consultants has decided to sub-let the property for the first 10 years of the lease to take advantage of the profit rent available due to the low rent negotiated. The sub-tenant, Property Repairs Inc. has agreed to a 10 year lease with a rent review in year 5. The MR will be payable for the first 5 years followed by a review to the current MR plus 10% for the final 5 years.

As possible incoming landlord, Dr. Lewis has instructed you to provide advice as to the value of the leasehold interest of FatChanz Consultants. Rents are payable quarterly in advance. ARYs for leasehold property in this market are 11%, tax is payable at 40% and the sinking fund rate is 4%.

  • Office floor 4 of New Oxford House is subject to The tenant, ‘Spinning Vinyl’, feels unsettled by a possible second change of ownership and wishes to secure a further lease before waiting for the current one to expire. Instead of the existing 6-year lease, that commenced five years ago, with an upwards only rent review after three years, the tenant wishes to negotiate a new lease, starting immediately, for 15 years with 5 yearly upwards and downwards rent reviews.

Dr. Lewis has asked that you to provide her with advice, as possible incoming landlord. The passing rent is £34,750 p.a. Rents are payable quarterly in advance, tax is payable at 40% and the sinking fund rate is 4%. The lease includes two parking spaces to the rear and it costs the current owner £750 p.a. per space to provide the parking, and external repairs and maintenance for all six office floors together cost a total of £6,000 p.a.

Guidance if you are due to resit the Valuation Report for TRP625

This work asks you to draw upon previously submitted work. In TRP625 Applied Real Estate Valuation, Part 1 Valuation Report you used comparable evidence to determine rents, yields and the estimate of Market Value for the subject property. These are valid to be used again in the current assignment.

If your TRP625 Report did not contain the rents, yields and estimate of MV that you need for TRP6416, then you should use figures selected from the range below. Following the same principles as set out in the following section, you should assume the rents and yields have been determined by your colleagues.

Estimate of Market Value for New Oxford House:    £5,000,000 – £7,000,000 Estimate of Market Rent for retail property: £500 – £700 p.a. psm ITZA Estimate of Market Rent for office property:                                          £100 – £140 p.a. psm Estimate of ARY for the retail sector:  7.5% – 12.5%

Estimate of ARY for the office sector:    6% – 12%

Please note that this is purely for the purposes of this academic assignment and in no way should be taken as over-ruling the mandatory advice to practising surveyors set out in the RICS Red Book, PS 2 paragraph 4.2(a).

It is NOT expected that you will need to redo any part of your Autumn Semester assignment prior to completing this Spring Semester work. If you have any concerns about the use of your previous work as a starting point for this assignment, or selecting figures from the range set out above, please check with the Module Coordinator as soon as possible.

Additional information

Comparables and market information

As with all valuations, the rents and yields that you use here will have been drawn from analysis of comparables. You should utilise the rents and yields determined in your TRP625 Valuation Report assignment. These can be assumed to have been determined by your colleagues. You do not need to repeat or present an analysis of those comparables.

References

As always, all sources of information must be fully referenced, using the Harvard style. Full guidance and links to resources are set out in the Student Handbook: https://www.sheffield.ac.uk/usp/currentstudents/postgraduate/submission/plagiarism

which includes how to reference properly and reference management systems. See also the materials from TRP619 for further guidance. You must carefully check through any feedback received on previous work. Inadequate referencing will be penalised.

The RICS Red Book can be accessed for free, using the link www.isurv.com and the log-in instructions provided on Blackboard in the Real Estate Hub. Compliance with the Red Book should be demonstrated by referencing the relevant paragraph number.

Submission

The date for submission is provided separately on Blackboard. Usual penalties for late submission apply. You are reminded that TRP625 Applied Real Estate Valuation is a pre-requisite for this module and you are expected to have studied it prior to beginning TRP6416 Investment Valuation and, therefore, to take your work on to a higher level. It is essential therefore that you fully utilise information previously provided to you as part of TRP625 Applied Real Estate Valuation, including the:

  • guidance provided on the preparation of valuation reports in the assignment brief; and
  • feedback provided on your work. It is expected that you will have acted on this feedback. Failure to do so may constrain the mark you can

There are two equally important elements that must be given full attention in the preparation of the report. Both of these elements will be considered when the mark is awarded. It is expected that both of these will be explicitly undertaken in line with the mandatory guidance set out in the Red Book:

  1. The technical preparation and presentation of the valuations / appraisals; and
  2. Fully considered, justified and defensible advice to your client, including the interpretation of the estimated values, with augmentation through reference to market comparables and data, as

The submission comprises two elements: (i) a professional report, with appropriate technical details likely to be best placed within appendices; and (ii) fully working excel spreadsheets, clearly showing each stage of the process in advising your client. Both elements must be submitted electronically.

Feedback

Feedback on the assessment will be given in the form of a comment sheet, which will indicate the main strengths and weaknesses of the submitted work, and highlight ways in which performance can be improved. In accordance with the University’s Principles of Assessment, students will normally receive written feedback on the coursework within 3 weeks of submission, and you will be given the opportunity to discuss this with the Module Coordinator.