VAL7VAE: Valuation and Ethics - Accounting and Finance Assignment Help

Assignment Task

Scenario

You are a trainee surveyor working for a local surveying practice and your supervisor at work has asked you to prepare a briefing note on some current instructions and issues, to help develop your knowledge and professional practice skills. The briefing note is to have three sections.

Task 1

You firm is employed by a private property company, who have a small diverse property portfolio, to give advice on their portfolio of properties. They are considering selling some of their office holdings and acquiring more distribution warehousing / logistics properties and would like some advice on the two sectors.

In the briefing note, outline how these two sectors (office and distribution warehousing / logistics) have performed over the last decade, at a UK level, and the key risks and outlook for investment in these sectors. (approximately 1,000 words)

Task 2

You have been working on valuations of two properties, Property A and Property B.

Set out in the briefing note the valuation calculations along with your assumptions to support the valuations for each property, and your critical evaluation of the traditional ‘dual rate with tax’ method of investment valuation for leasehold properties. (approximately 1,000 words)

Property A

A city centre retail unit of 800 square feet (74.32 square metres) in terms of Zone A was let six years ago on a 15-year Full Repairing and Insuring lease with 5-yearly upward only rent reviews. The initial rent was £170,000 per annum and this was not increased at the rent review last year. The market has now improved slightly, and rents are increasing.

A neighbouring unit of 850 square feet (78.97 square metres) in terms of Zone A has just been let at £191,000 per annum and sold onto an investor for £3,050,000.

Provide a capital valuation of the freehold interest in the property by one conventional freehold valuation approach (term and reversion or hardcore/layer method) and by a ‘rental growth’ explicit discounted cash flow valuation on the basis that the equated yield for this type of property investment is 8.5% and that the holding period is until the end of the lease.

Property B

A warehouse of 15,000 square feet (1,393.55 square metres) was let two years ago by Prime Properties, the outright owner of the property, to Bargain Products for 10 years at £136,500 per annum on Full Repairing and Insuring (FRI) terms with five-yearly rent reviews.

A very similar warehouse of 15,500 square feet (1,440 square metres) was recently let at rent equating to £10.25 per square foot (£110.33 per square metre) per annum. After being let, the freehold interest of this warehouse was sold for £2,250,000.

Using the above information, value Bargain Products interest as Tenant using the Dual Rate Years Purchase (YP) adjusted for tax method for leasehold valuations.

Alongside the valuation for Property B, you should review the recent literature available and outline the key criticisms of the dual rate YP adjusted for tax method of valuations for leaseholds.

Task 3

In the briefing note, outline your understanding of the method chosen and the key criticisms of that method of valuation with reference to EITHER:

• the profits method

OR

• the cost-based methods of valuation

OR

• the residual method of valuation.

This should include, but not be limited to:

• a very brief outline of the chosen valuation approach and the circumstances when you would use this method of valuation;
• a review of the academic resources available to highlight the key limitations and criticisms of the method of valuation;
• any professional or regulatory issues you have identified about accepting an instruction that will require you to use this valuation approach. (approximately 1,000 words)

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