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REE 6209 Real Estate Finance And Investment Analysis

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Task One

You have been asked by the partner responsible for retail to sketch a high street and show the occupiers, their trade type and any vacant units, in a location known to you. You should not copy a Goad Plan (or similar) and need not worry about the depth or rear layout of shops, however, you should attempt to accurately show the width of the units. Your sketch should be neat, and hand drawn.

You do not necessarily need to sketch a whole town centre but should seek to sketch a few streets, or areas, to cover around 40 units. You should show pedestrian crossings and other features, put a north point on, and state the location. Mark the traders present by name and also what they do – e.g. Clarks shoe retailers, also mark vacant units and note any agent instructed. Do remember that you will need to copy your sketch to be able to put it in the document that is submitted electronically as your coursework.

Task Two

A rack rented freehold bank premises is available at auction. The rent is £65,000 p.a FRI (Full Repairing and Insuring). The team you are working with are unsure whether to apply a yield of 5, or 5.25% to the investment. They have asked you to set out the income flow diagrammatically. They have then asked you to value the property using both of these yields, gross. They have then asked you to deduct purchaser’s costs (assumed to be) 6.8% from the two figures and to report these as well.

This will provide an insight into the sensitivity of valuation to yield choice. You would then ideally seek more comparable information and attempt to make a robust, supported, decision about the appropriate yield.

Task Three

Most investment property is not let at a rack rent, but is reversionary, the rent is expected to change from the passing rent at rent review or lease renewal. This happens when the property is not recently let at a full rent. The property was perhaps let some time ago and that figure is now historic, the market having moved on. You are working for a Local Authority and elected members have asked for an explanation as to how such property is valued on a ‘term and reversion’ basis. Create your own example of a term and reversion valuation, with income flow diagram and layout, and value this. Explain and comment on every line of your valuation – stating what is taking place and happening with the figures on each line.

You should ensure that you have a different ‘property’ from everyone else – given the infinite choice of numbers out there, the passing rent and reversionary rent, should be different from others. To help in respect of yield you would be advised to choose a figure in the 3.5%-11% range. Take care with the yield treatment of the term and reversion and get this correct. Explain and comment fully in your answer.

Task Four

One of your colleagues has been to lunch with a small regional commercial developer. They discussed the availability of a site on the edge of a market town. The site has planning consent for 800 square metres gross of office space. Rents in the locality are in the region of £230 per metre squared net, office yields are 5.5% with a good covenant, build costs are in the order of £1100 per metre squared gross, finance can be assumed to be available at 7%p.a, the build period and a void period need to be assumed, other costs should also be assumed, reasoned and stated. Provide an estimation of the figure you feel the developer could afford to pay for the site. Fully reason your answer.

This question above asks for an outline residual valuation. There are some ‘unknowns’ that you have to provide reasoned figures for, do that. If you cover the main cost headings and allow for a Developer’s Profit you should be proceeding along the right lines. Do though reason your figures and fully explain them. You should (obviously) but it is worth restating, not copy or reproduce the work of any other student.

Task Five

A shopkeeper has come into your office for a meeting with one of your Partner’s to discuss his Rating Assessment. Following the discussion it is clear that the shopkeeper does not understand what is meant by the expression; ‘rent In Terms of Zone A (ITZA)’. Your Partner has asked you to provide outline sketches and notes covering a few different situations, to explain what is meant by an ITZA rent and to show how one is arrived at.

The final part of answering this question would be helpfully answered by creating a ‘comparable property’ let at a rent and then analysing this rent so it is put in terms of zone A. You can then use this figure to calculate an assumed rental value for a ‘subject’ shop.

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