UCEM VAL7VAE Assignment 1: Real Estate Investment Analysis Report

This report presents a comprehensive real estate investment analysis, focusing on the 'Whiteknights Business Park'. It begins with an executive summary and an introduction to investment analysis, highlighting key steps like calculating market value, operating costs, and return on investment. The report details the property's characteristics, contrasting initial descriptions with survey data, and includes a strategic action plan to address conflicts of interest, ensure high service standards, and maintain fee transparency. The analysis incorporates market evidence, calculates market value using the term and reversion method, and discusses how tenant administration impacts valuation. It also addresses scenarios where a client might pay above market value, reflecting ethical considerations and valuation methodologies as per the assignment brief. The report is a detailed response to the VAL7VAE Valuation and Ethics module assignment.

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MARKETING –INVESTMENT ANALYSIS
Marketing – Real Estate Investor Analysis

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MARKETING –INVESTMENT ANALYSIS
Executive Summary
The investment analysis is a vast term that helps in analyzing various interrelated features for
evaluating the financial assets, sectors and trends for the real estate companies. It helps in
analyzing the past records to predicting the future scope, selecting the type of the investment
that is appropriate for the investor's need and evaluating the securities such as stock and bonds
and checking the categories of security for risk of the yield of the potential or price movement.
The main objective of the investment analysis is to evaluate how the designed analysis
framework will perform and how it is suitable for the given investor. The key factors that are
considered are entry price, expected time horizon for holding the investment and most
importantly what role does the investment will play in the project.
The main objective of this report is to present the detailed analysis of the real estate
investment and give the appropriate suggestions to work on these issues. Here in this report, the
investment analysis for the Real Estate will be performed, like other sectors, the analysis of the
real process yield is performed. It will begin with understanding the net operating income and
then developing the appropriate strategy for working on it. The analysis of the White House
Business park will be performed in a structured manner and observed results will be presented
at the end of the report. Along with this also at the end of report various interrelated issues
raised in the assignment will be considered.

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Table of Contents
Executive Summary.................................................................................................................2
1.0 Introduction.......................................................................................................................3
2.0 Key benefits of Performing the Real Estate Investment Analysis........................................5
3.0 Real Estate venture for analysis is to be performed- White knights Business Park..............6
3.1 Investment summary....................................................................................................................6
3.2 Detail of the property through local survey company (compare study)........................................7
4.0 Strategic Action Plan..........................................................................................................9
Referencing...........................................................................................................................14

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1.0 Introduction
A real estate investment analysis is a process of analyzing the investment opportunities to
decide whether or not they will give the profit expected through this business venture. Like other
sectors, the investment analysis is the most critical task in the Real Estate business ventures
too.The four key steps in investment analysis of the Real Estate business venture is as
follows-
1. Calculating the market value of the Real Estate Property
To perform these, the Real market investors find the real value of the property, a good
investor will tend to purchase the property at the fair market price and avoiding the overpaying.
To achieve this objective the investors, compare the prices of the similar property available in a
similar area with same facilities in the property (Dawn’s, 2000).
2. Calculating the operating cost
To calculate the operating cost the cash flow analysis is performed of the total investment in the
market. To calculate these different costs are calculated, the key costs that are calculated are as
follows-
 Property Taxes
 Insurance cost
 Utility cost
 Turn over cost
 Maintenance expenses
 Property Management Fees
 Marketing Fees
 Rental Fees
 Principal payment

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The detail is collected through various bills and property return statements and
maintenance record bill expenses.
3. Finding the market trend
As technologies are changing, the real estate property also changes. The cost of the property is
also evaluated through the current trends in terms of architectural designs and facilities available
in the targeted property. It is also required to analytically study the facilities of similar properties
such as architectural styles and other advance features than the latest trend in real estate can be
determined, this will help to understand the real picture of the real estate market and then own
required facilities in the prospective real estate companies.
4. Calculating the return on the investment
To achieve this investors study requires to study the analytical cash flow, cap rate and
cash on cash return of the investment is performed. Along with these other factors are
also considered. The detail is as follows-
 Cash Flow-
This is the money that is left after all the expenses, principal payments and interest have been
paid. For the real estate investmentanalysis, it is highly required to determine the future flow of
the investment in the Real Estate market.
 Cap Rate
This is determined by calculating the Net operating income (NOI) over the property value,by
calculating this value will help compare the multiple properties in a particular area. This also
helps in determining the market trends and also helps in identifying the risks associated with it in
investing in the property selected.
 Cash on Cash Return

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Cash return is the total money returned after being an investment; it is done by comparing the
obtained cash with the invested money. For calculating this firstly the invested down payment,
closed cost, repair cost etc isconsidered (ZahraKhams Adela Khams, 2008).
2.0 Key benefits of Performing the Real Estate Investment Analysis
The main objective of performing the Real Estate Investment Analysis is to find out the real
value of the concerned property in a particular region. The key benefits of performing the Real
Estate Investment Analysis is as follows-
 Helps in determining the accurate data
The Pro-forma data of the observed values help in determining the real value of the property by
collecting accurate data. The Pro-Forma data is the estimated data values about the property in a
structured manner.
 Helps in determining the real value of the property
The analysis helps in determining the real value of the property by proper calculation of data that
helps the investor from any problems that could arise in future.
 Buyer’s Personalized data
The analysis helps in collecting the details of the Buyer’s personalized information. It is done by
determining the value of the net operating income (NOI) and the capitalization rate. Further, it is
calculated by evaluating the interest rate and mortgage cost. This is determined with the help of
calculating the cash on cash return (Dawn’s, 2000)

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3.0 Real Estate venture for analysis is to be performed- White knights
Business Park
3.1 Investment summary
According to the analysis performed the initial description of the Business Park was given as
follows-
 Building Description-
It is a three-storey self-contained open plan office
 Location
It is situated at the modern business park developed in 2008 and comprises of the 10 modern
office buildings and is situated at the centre of the large regional city
 Accommodation detail
Approximately – 1,858 square meters (20,000 sq feet) with 20 car spaces
 Status
It is a freehold property and is let on rent to a single tenant through an International firm of
solicitors
 Maintenance and Insurance
The building has been provided with the plan of 15 years full repairing and insurance starting
from 1 October 2019. Along with this complete detail of the 5 years, rent review with no break
up has been provided.
 Annual Income detail is given to be obtained through this property
The total rental income is ₤21,000 with the agreed rate of ₤500 per car space.

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3.2 Detail of the property through local survey company (compare study)
According to various report provided by the local survey companies, the data given by them was
completely different from these values and it created a lot of confusion among the investors. The
data comparison is as follows-
 Building Description-
Initial Given- It is a three-storey self-contained open plan office
First Survey- Threestorey self-contained open-plan office.
Second Survey- Threestoreys self-contained open plan office
Third Survey- Threestoreys self-contained open plan office
 Location
Initial Given- It is situated at the modern business park developed in 2008 and comprises of the
10 modern office buildings and is situated at the centre of the large regional city
First Survey- same data
Second Survey- Same data
Third Survey- Same data
 Accommodation detail
Initial Given- Approximately – 1,858 square meters (20,000 sq feet) with 20 car spaces
First Survey- Approximately – 1,393 square meters (15,000 sq feet) with 15 car spaces
Second Survey-Approximately – 1,486 square meters (16,000 sq feet) with 16 car spaces
Third Survey- Approximately – 1,207 square meters (13,000 sq feet) with 10 car spaces

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 Status
Initial detail- It is a freehold property and is let on rent to a single tenant through an
International firm of solicitors
First Survey detail- It is a freehold property and is let on rent to a single tenant through a firm
of Accountants
Second Survey detail- It is a freehold property and is let on rent to a single tenant through a firm
of telecommunications
Third Survey detail- It is a freehold property and is let on rent to a single tenant through a firm
of Insurance Brokers
 Maintenance and Insurance
Initial Detail- The building has been provided with the plan of 15 years full repairing and
insurance starting from 1 October 2019. Along with this complete detail of the 5 years, rent
review with no break up has been provided.
First Survey detail- 20 Years FRI lease from 1 October 2019 with 5-year rent review and no-
break up option
Second Survey- 15Years FRI leases from 1 October 2014 with 5-year rent review and no-break
up option.
Third Survey- 15 years FRI lease from 1 October 2019 with 5-year rent review and no-break up
option.
 Annual Income detail is given to be obtained through this property
Initial Detail- The total rental income is ₤21,000 with the agreed rate of ₤500 per car space.
First Survey Detail- The total rental income is ₤232, 500 with an agreed rate of ₤500 per car
space.

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Second Survey Detail- The total rental income is ₤232, 500 with an agreed rate of ₤500 per car
space.
Third Survey Detail- The total rental income is ₤20,000 with the agreed rate of ₤500 per car
space.
The property was sold at the auction rate of the ₤2,856,000
4.0 Strategic Action Plan
a) Action Plan for avoiding the conflict of interest
The conflict of interest is a situation in which a person or organization is involved in the multiple
interests, financial and serving one interest over the other. In a broad sense, the Interest is the
commitment, obligation, duty or goal associated with concerned property with considering social
values. To avoid the conflict of the interest in a prospective property following an action
plan is required to be followed-
 To avoid the conflict the first step will be giving complete details of all the
activities to the client-side. The transparency is very important.
 The second step will be following the complete legal procedure of purchasing the
property so that there is no conflict shortly.
 Taking the view of the expert panel will also help in avoiding the conflict
(Thomas’s, 2009)
b) To provide the high standard service
Providing the high standard services is very important, the key actions to be taken in this
respect is as follows-
 To make a proper plan with complete specification of long term and short-term goals here
the long term goals are rental income and insurance, the short term goals are
maintenance.

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 To do a detailed study of the market by comparing similar properties.
 To be honest and giving complete details to customers this will help in increasing the
goodwill of the company.
 To develop the niche in a particular domain in the real estate market.
 Encouraging referrals will also help in providing high-quality service.
c) To ensure the transparency regarding the professional fees
To ensure the transparency regarding the professional fees, it suggested to perform the market
survey and according to the specifications and fees of other Investment Analyst the professional
fees should be set and the customers should be displayed the fees of other professionals so that
transparency regarding fees structure can be displayed (M. C. Cant, J. W. Stardom, C. J. Jousted,
P. J. du Plessis, 2009)
d.) Measurement Explanation
In the analysis, the standard methods and techniques have used that help to find the values that
are uniformly accepted worldwide. Some of the key methods are Net Operating Income (NOI),
metrics in generating the income through the property,build-up method; Market extraction
method, Band of Investment method, Comparable equity valuations, valuation models and
various other techniques are utilized to determine the value of the property. It is also required to
analytically study the facilities of similar properties such as architectural styles and other
advance features than the latest trend in real estate can be determined, this will help to
understand the real picture of the real estate market and then own required facilities in the
prospective real estate companies. These standard methods help the analyst to determine the
measurement approach of the prospective property in the standard manner(AlainJoliet, Hans
Mühlbacher, Laurent Flores, Pierre-Louis Dubois, 2008).
Net Operating Income (NOI)= Real Estate Revenue (RR) – Operating Expenses (0E)
Return on Investment (ROI) = Gain on Investment – Cost of Investment/ Cost of Investment

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Cash flow –The cash flow will present the detailed expenses on investment
Other expenses to be calculated as discussed in the Introduction section will be applicable here
too. The key costs that are calculated are as follows-
 Property Taxes
 Insurance cost
 Utility cost
 Turn over cost
 Maintenance expenses
 Property Management Fees
 Marketing Fees
 Rental Fees
 Principal payment
e) Spreadsheet demonstration of the Analysis
Term and Reversion method
The Term and reversion method is used to analyze the investment at the Real estate; it helps in
valuing the real estate projects with specific lease structure.

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The above calculation based on the Term and reversion method depicts the Total
value of the concerned property is $ 3,025072.9
d) The Effect on calculation if the tenant had gone into the administration
The administration is a process that provides the framework for solving the conflict in the real
estate properties. In this process, the Administrator takes over the running of the company from
the board of directors. The main objective of this process is to save the company and its business
so that it continues its trading without any hassles. When the company is in administration than a
“Moratorium” is issued to the company, it is a protective financial and legal cloak that is placed
around the company, in such situation landlord cannot perform following activities-
 Disdain for non-payment of the rent (seize the goods of the tenant )
 Forfeit a lease for peaceful re-entry
 Beginning any legal proceedings

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 To enforce any security
It is suggested to go through all the legal processing before taking any action against the tenant
and follow the guidelines(G.VSatyrShepherd, 2008).
E) Circumstances when we will suggest the client pay more than the market valuation
1) There are certain economic periods when the rate of the property is comparatively down but
when the property rate blooms than automatically the rate of property gets higher so in case the
customer is purchasing the property for reselling in near future than advising him/her to purchase
in higher rate is appropriate.
2) In some cases it is found that certain properties are in the region where the government is
planning to construct some good facility near to it such as Master plan road, bridge, hospital,
school, market place etc, the higher rate can be demanded.
3) Similarly, if a property is in a region where a private company is planning to open a big
venture than the demand of higher rate can be expected.
Conclusion
The real Estate investment analysis is a process of analyzing the investment opportunities
that help to decide whether it will be profitable to invest in the particular property or not. Most
importantly it also helps in providing the framework for achieving the real estate investment
goals. It helps in analyzing the past records for predicting the future scope, selecting the type of
the investment that is appropriate for the investor's need and evaluating the securities such as
stock and bonds and checking the categories of security for risk of the yield of the potential or
price movement. The main objective of the investment analysis is to evaluate how the designed
analysis framework will perform and how it is suitable for the given investor. This was a simple
approach of the student level knowledge but its scope is much wider.

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Recommendations
 It is advised to perform the complete analytical study as well also follow all the legal
procedures and guidelines instructed by the expert panel to resolve any kind of conflict.
 It is recommended to make a proper plan with complete specification of long term and
short-term goals.
 In case of any problem related tenant issue with administration it is suggested to follow
complete procedure.
 In the analysis it is advised to use the standard methods and techniques that help to find
the values that are uniformly accepted worldwide.
 Most importantly the well researched policies should be developed and strictly followed.

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Referencing
Dawn’s, (2000), Marketing Management, Engage Learning ,USA
M. C. Cant, J. W. Stardom, C. J. Jooste, P. J. du Plessis, (2009), Marketing Management, Juta
and Company Publication, USA
Alain Jolibert, Hans Mühlbacher, Laurent Flores, Pierre-Louis Dubois, (2008),Marketing
Management-A value-creating process, Palgrave Macmillan Publication, U.K
G.V Satya Shekhar, (2008), Business Policy and Strategic Mangement, K.International
Publication, India
Thomas.L, (2009), Strategic Mangement and policies, Pearson Publication, USA
Azhar Kazmi Adela Khazmi, (2008), Strategic Mangement, Mc Grew Hill, USA
P.Subha Rao, (2007), Business Policy and Strategic Mangement, Himalaya Publication , India