) Identify one retail building in Birmingham which has a floor area between 200 sq 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 press and/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.
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.
For clarification – the property can be either an office or a retail unit (e.g. shop). It must be the whole building
If it is multi- let you can assume it is single let
To calculate the ERV you need 4-6 comparables of similar types of building – the best will be similar buildings let recently in the same location – you may need to look slightly further afield to identify comparables. The comparable rents can be floors in buildings. You need to search EGi and Focus to find the comparables.
You will need 3 or 4 comparables for the All Risks yield – if you cannot find yield evidence near to your subject property then widen the search parameters.
You need to consider how each comparable needs to be adjusted to arrive at your ERV and ARY.
You need to look at the Red Book to help you with the contents of the valuation report
You need to prepare 2 spreadsheets for the DCF. The first is the current scenario and the second the proposed scenario. On popular demand I have posted annotated template for the DCFs under Study material. You can use these templates but remove the notes
Start with the current scenario tab and calculate the NPV based on the current lease information – i.e. with 2 years to expiry. Allow of a void before the property is relet.
The proposed scenario should be a letting for 10 years with the rent increasing by inflation after 5 years.