PRO200: Commercial Office Building Valuation Essay Writing - Management Assignment Help

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Commercial Valuation (PRO200) - Assignment 2
Commercial office building valuation report.
In this exercise you are required to derive a valuation figure for a subject 4 storey building in Parramatta, NSW. The property address is 42 Phillip Street, Parramatta. The date of the valuation is 31 December 2012.
All tenancy information and comparable rental and sales information are provided herein. Your task is essentially fourfold.
Determine a value for the building based on comparable sales information. You will need to first determine a unit rate of rental per annum for the upper three floors and a separate one for the ground floor which is inferior as it includes public foyer and access areas.
Once this has been done, you will need to strike a capitalisation rate to apply to the subject property and derive the value by capitalisation.
Undertake a number of PV adjustments to the otherwise found value of the building.
Reconcile this figure with a ‘check method’ valuation based on a direct comparison, unit of value approach.
Include a factual market commentary for the Parramatta office market in (Sydney NSW), and all references cited in the college style. (Guide 4 - 6 pages)
The subject premises are a good quality, four level, reinforced concrete, commercial office building of some 3,995 square metres in Net Lettable Area. Designed by the architects, the Kann Finch Group it was built by renowned builders of the time, Baulderstone Hornibrook and completed in late 2004.
Originally built in slip form and roofed in steel decking over suspended concrete slab, the building has attractive blue tinted and bonded glass, curtain walling with a number of internal mullions extended in clear glass to provide vertical garden features and lesser heat penetration and loss.
The centre of the floor plates house all services including elevators, water, trunk air conditioning and waste water. In addition, there is a fire stair egress adjacent to the central stack that adjoins each floor. The building has no dedicated parking on-site, however this is somewhat ameliorated by two large public parking areas within a close walk nearby.
The building levels vary in slightly in size:
Ground Floor 925.00 sqm.
1st Level 980.00 sqm
2nd Level 985.00 sqm
3rd Level 1,065.00 sqm
Total 3,955.00 sqm
At Phillip Street, the ground floor has a double glass sliding door entry to a common foyer area leading directly to the lift reception areas for upper floor tenancy access. There is also a single door access to the rear and eastern walls, presumably in line with fire egress requirements and marked as such. The ground floor tenant shares bathroom facilities with the public access and has a dedicated reception hob that fronts the foyer with the rest of the office space petitioned off from the public foyer.
In turn, each successive floor has a dedicated reception hob and waiting room foyer, with offices internally petitioned off. Because of the construction type, large clear span office areas can be provided that a tenant can separate according to design requirements. Internal cabling and communication lines run through the ceilings, dedicated mullions and skirting profiles, while the central trunk air conditioning is fed through branch ductwork in the ceilings and through to successive floors in the rise.
 

The general fit out surfaces to each floor are:

Ground floor: Grey marble to entry foyer and to public and lift well and stair foyers; ceramic tiling to major walk areas in the office area and then dark grey, commercial grade carpeting to the remainder of floor areas; standard internal petition walling and well-appointed bathroom areas in grey marble and ceramic tile. There are also plasterboard ceilings with concealed low wattage lighting to main floor areas, and low voltage fluorescent lighting at ceilings adjacent to the curtain walling. In addition, there is fire-safety lighting to lift and stair wells.
First floor: Pink ‘egg-shell’ marble to entry foyer and in public lift well and stair foyers; ceramic tiling to major walk areas in the office area and then maroon coloured commercial grade carpeting to the remainder of floor areas; standard internal petition walling and well-appointed bathroom areas in pink marble and ceramic tile. There are also plasterboard ceilings with concealed low wattage lighting to main floor areas,

and low voltage fluorescent lighting at ceilings adjacent to the curtain walling. In addition, there is fire-safety lighting to lift and stair wells.
Second floor: Pink ‘egg-shell’ marble to entry foyer and in public lift well and stair foyers; ceramic tiling to major walk areas in the office area and then maroon coloured commercial grade carpeting to the remainder of floor areas; standard internal petition walling and well-appointed bathroom areas in pink marble and ceramic tile. There are also plasterboard ceilings with concealed low wattage lighting to main floor areas, and low voltage fluorescent lighting at ceilings adjacent to the curtain walling. In addition, there is fire-safety lighting to lift and stair wells.
Third floor: Pink ‘egg-shell’ marble to entry foyer and in public lift well and stair foyers; ceramic tiling to major walk areas in the office area and then maroon coloured commercial grade carpeting to the remainder of floor areas; standard internal petition walling and well-appointed bathroom areas in pink marble and ceramic tile. There are also plasterboard ceilings with concealed low wattage lighting to main floor areas, and low voltage fluorescent lighting at ceilings adjacent to the curtain walling. In addition, there is fire-safety lighting to lift and stair wells.
Generally, the internal fit out appears in good quality with acceptable finishes and facility and is considered at market standard.
Tenancy Details
Lessee: Computer Services Inc.
Tenancy area: Ground Level, 925 sqm.
Lease term: 4 years
Option: Nil
Start date: 1st January, 2011
Expiry date: 31st December, 2015
Passing net rent: $161,875
Outgoings: Tenant responsible for proportionate outgoings of the building.
$/sqm p.a.: $275.00
Review date: 1st January, 2013
Review type: Market
Lessee: Health Admin Corp.
Tenancy area: First Level, 980 sqm.
Lease term: 10 years
Option: Nil
Start date: 1st July, 2007
Expiry date: 31st December, 2017
Passing net rent: $294,000 Outgoings: Tenant responsible for proportionate outgoings of the building. $/sqm p.a.: $300.00 Review date: 1st July, 2013 Review type: Annually to CPI Lessee: ING Direct Tenancy area: Second Level, 985 sqm. Lease term: 8 years Option: Nil Start date: 1st July, 2011 Expiry date: 30th June, 2019 Passing net rent: $246,250 Outgoings: Tenant responsible for proportionate outgoings of the building. $/sqm p.a.: $250.00 Review date: 1st July, 2013 Review type: Market Lessee: Telstra (heads of agreement) Tenancy area: Third Level, 1,065 sqm. Lease term: 10 years Option: Nil Start date: 1st April, 2013 Expiry date: 31st March, 2023 Passing net rent: $292,875 Outgoings: Tenant responsible for proportionate outgoings of the building. $/sqm p.a.: $275.00 Review date: 1st April, 2015 Review type: Market Subject property tenancy schedule
 

Tenancy Schedule
42 Phillip Street, Parramatta Level Tenant NLA
m2 Current Net Rental
$/p.a. Rate Net
$/m2 Term Years Lease Start Lease Expiry Next Review Review Method
Ground Computer Services Inc 925.00 161,875 175.00 5 1.1.2011 31.12.2015 1.1.2013 Market
1 Health Admin Corp 980.00 294,000 300.00 10 1.7.2007 31.6.2017 1.7.2013 Annual CPI
2 ING Direct 985.00 246,250 250.00 8 1.7.2011 30.6.2019 1.7.2013 Market
3 Telstra (heads of agmt.) 1065.00 292,875 275.00 10 1.4.2013 31.3.2023 1.4.2015 Market
Totals 3,955.00 $995,000 251.58
 

COMPARABLE MARKET EVIDENCE
Sales Evidence
Address Sale Price Date Size sqm Net Rent S/pa Rate Net
$/sqm S/sqm NLA Yield
% Comment

• 9 George Street, Parramatta $24,500,000 Nov 2011 5,476 $1,604,400 $292.99 $4,474 6.55 A 7 storey office building completed 2001. Basement car parking provided.
• Fully leased to 5 tenants. One lease expires 7/2012 (15% NLA). No other leases expire until 2017.
• Older sale in less firm market. A slightly older and larger building located in more central CBD location. Fully let up and secure longer. Superior in providing parking. In balance, adopt as superior to the subject.
• 96 Phillip Street, Parramatta $6,500,000 May 2012 1,815 $432,576 $238.33 $3,581 6.66 A similar 4 level office building with basement parking completed 1984.
• Ground floor has restaurant. The rest fully let with staggered lease expiry until 2017.
• Recent sale of smaller building but in near location to subject and with parking.
• Slightly less surety of tenure. Retail component. In balance, inferior through size and age. Adopt as inferior to the
• subject.
• 10 Phillip Street, Parramatta $16,250,000 Aug 2012 4,632 $930,250 $200.83 $3,508 5.72 A 7 level older office building completed in 1980 offering ground floor retail and 6 levels of office. Limited outside parking on-site.
• Sold with 30% vacancy to investor who will take up the space. Hence lower yield.
• Adjusted for market, yields 8.50%, and adjusted rental rate of $279.85.
• Older, but closer to CBD. Slightly
• larger. Riskier retail component. In balance adopt as inferior to the subject.
• 3 Byfield Street, Macquarie Park $11,600,000 Sep 2012 3,300 $846,000 $256.36 $3,515 7.29 3 level office building, of similar age.
• Located in office park near Macquarie University. Handy to train and main road links. Sold fully let up at market rentals.
• Secondary position and market. Adopt as inferior to the subject.
• 2 Raw Square, Strathfield $13,470,000 Feb 2012 4,440 $980,000 $220.72 $3,034 7.28 7 level office building in western corridor midway between Sydney and Parramatta CBDs.
• Single national telco tenant at market rental. Expiry in 2014.
• Similar age building. Lesser secondary market and suburb. Very handy to transport and closer to city CBD. In balance an inferior position and some risk of tenure to be renewed. Adopt as inferior.
• 50 Miller Street,
• North Sydney $50,000,000 Jul 2012 10,435 $3,136,344 $300.56 $4,792 6.27 Modern 10 storey office building with basement parking for 76 cars.
• Leased to national bank for 10 years until 2020.
• Prime location in better CBD market closer to city and in advance of Parramatta. Very well located to rail and Sydney CBD.
• Strong and long tenancy, well superior to subject. Adopt as comparable.
   

Leasing Evidence

• Address Tenant Area sqm Rent/sqm/p.a. Basis Date Term Years Comments
• 80 George Street,
• Parramatta Sinclair
• Consulting 655 $220.00 Net Aug 12 5 Older building in need of upgrade.
• 110 George Street, Parramatta RTA 1,887 $260.00 Net May 12 6.5 Rent review of sitting tenant. Comparable building.
• 96 Phillip Street,
• Parramatta Blair
• Advertising 450 $250.00 Net Jul 12 4 Good building close to subject.
• 9 George Street, Parramatta JMH 820 $360.00 Gross Apr 12 5 Comparable building. Outgoings
• estimated at $75/sqm or $61,500. Therefore, Net at $285.00/sqm rate.
• 10-14 Smith Street, Parramatta State Property 589 $250.00 Net Jul 12 2 Rent review, comparable building.
• 2 Macquarie Street, Parramatta AMP 1,800 $370.00 Gross Sep 12 6 Prestige office building. Outgoings estimated at $90/sqm. Therefore,
• $280.00/sqm rate net.
• A number of PV adjustments must be made to the otherwise found value (adopt 6% as the discount rate):
• The Present Value (PV) of the cost of the air conditioning plant repair on 1st October 2013 estimated at
• $320,000 at say 9 months deferred.
• The PV of the CPI adjusted rental of Level 1 as at July 1st, 2013. Annually a rental rise of 2.2% will yield an extra (980sqm x $6.60/sqm p.a.) or $6,468 p.a. Assume monthly in advance (annuity due).
• The PV of the market adjusted rental of Level 2 as at July 1st, 2013. Given it should be paying, say $280 sqm pa, or $274,400 p.a. or $22,866.67 pcm and presently runs at a shortfall of just $250 sqm pa or $246,250 p.a. or $20,520.83 p.c.m. Assume monthly in advance (annuity due).
   

Assessment Criteria:
Please check the following rubric for further marking detail.
Criteria Mark Possible Mark Gained
 

Part 1

• Determine Valuation based expressed methodology 30 Part 2
• Undertake PV adjustments – Correct calculations 30 Part 3
• Correct application of direct comparison, unit of value reconciliation 10 Part 4
• Market commentary - Parramatta
• Adequate research and referencing 20
• 10 Total 100 Please check the following rubric for further marking detail.
   

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