5PROPRMN001W - Property Valuation Report: Commercial Practice 2018

This assignment focuses on commercial property valuation, specifically addressing the valuation of an office building in a major UK city. It requires the identification and description of a suitable property, estimation of its rental value and all risks yield (ARY) using comparable evidence, and calculation of rates payable under different scenarios. The assignment further involves preparing a valuation report for purchase purposes, considering RICS Global Standards, and conducting a discounted cash flow (DCF) analysis to compare the net present value (NPV) of an existing lease with a proposed new lease, incorporating a rent-free period. The hypothetical scenarios include dealing with over-rented properties and advising on lease negotiations. The analysis includes detailed calculations, reasoned justifications, and clear statements of assumptions made throughout the valuation process.

5PROPRMN001W
Commercial Practice 2018
a) Identify one office building in Liverpool, Leeds, Manchester, or Birmingham
which has a floor area between 1,000 sq. m.- 6,000 sq m. For the purpose of
this coursework the actual lease(s) is (are) irrelevant and you are to assume
that the whole property is let to a single company.
b) Describe the property including stating the floor area of the premises, and
commenting on the location, description and specification 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 Market rental value and ARY.
d) Identify the Rateable Value of the building and calculate the rates payable
including SBRR in 2017/8 and estimate the rates payable (including reliefs) in
2018/9 and 2019/20. Clearly discuss how the Rateable Value has been
calculated and annotate the calculations to demonstrate whether the
hereditament is subject to transition relief (phasing).
e) Hypothetical Scenario 1 – Assume that the property has just been let at
your estimated rental value to a tenant with a reasonable covenant strength.
Prepare a valuation report for the freehold interest in the property for the
purposes of a purchase. This report should follow the provisions of RICS
Global Standards Valuation and provide a reasoned valuation. It should
include the relevant information in accordance with the professional
standards.
f) Hypothetical Scenario 2 - Assume that your building was let to a tenant with
a reasonable covenant strength 12 years ago on a 15 year FRI lease at a rent
which is now 15% more than the ERV. i.e. you are assuming that the lease
expires in 3 years and that the property is currently over-rented.
i. Calculate the Market Value of the freehold interest for loan security
purposes.
ii. Assume that 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 via turnitin in accordance
with the course handbook
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 discussing its characteristics
2 A rating calculation showing the Rates Payable in 2017/8, 2018/9
and 2019/2020
3 A reasoned valuation of the Estimated Rental Value and All Risks
Yield
4 A reasoned purchase report valuation in accordance with the
RICS Valuation Global standards.
5 A reasoned valuation on the freehold Market Value assuming the
passing rent is 115% of the ERV (assume the ERV as in 3 above)
5 A reasoned Discounted Cash Flow calculating the NPV of the cash
flow for BOTH the existing lease and the proposed lease
Assessment Criteria
1. Completion of the valuations and 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.
4000 words
2