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REAL ESTATE VALUATION AND APPRAISAL
PROJECT BRIEF 2020-2021
Project Aims
The aim of the project is to introduce you to the complex operation of the investment, use and
development markets by applying the techniques and methods associated with valuations and
appraisals to solve real life problems.
 
 
Output Objectives
When you successfully complete the project you should be able to:
• systematically examine and compare conditions in the office markets in Central London, downtown Manhattan and Singapore’s downtown core;
• understand how the performance of real estate markets is connected to broader economic trends at the urban, regional, national and international levels;
• be proficient in the collection, interpretation, synthesis and preparation of material from a variety of diverse sources;
• undertake the analysis and critical evaluation of market data;
• put into practice the income, direct comparison and profit methods of valuation; and
• critically appraise investments using a DCF model.
 
Project Details
You have been appointed by C-19 Property Investment Ltd. This is a London based private property
investment company looking for advice and guidance on the management of their portfolio. They have
asked you to undertake a dcf appraisal of the investment value and traditional market valuation on the
following investment opportunity.
 
 
5 St James’s Square, London, SW1Y 4JT
Located in a prominently position in Central London, this property is arranged over seven floors and
provide 1,504 square metres (16,183 square feet; IPMS 3) of office space over the lower ground,
ground, mezzanine and four upper floors. The current tenancy schedule is as follow:
 
Lower Ground Stanhope Grate Architecture Ltd occupiers 214.1 square metres (2,305
square feet) on the ground floor. The FRI lease, signed May 2017, was for
25 years with 5 yearly rent reviews. The passing rent is currently £154,140.
This office has one car parking space.
Ground & Levels 1 &3 These three floors are occupied by SHL Capital (UK) Ltd and represent
765.3 square metres (8,237 square feet) of office space. The IRI lease
currently in place for all three floors was signed at the end of July 2017. The
current rent on the15 years lease (5 yearly rent reviews) is £1,560,000. This
office has one car parking space.
Level 2 Whitehall Residences Ltd occupiers this floor (251.6 sq m/2,707 sq ft) on a
net lease for a period of 21 years with 7 yearly rent reviews. The lease was
signed 1st December 2020 with the annual and in advance rent set at the full
market rent.
 

 
Real Estate Valuation and Appraisal
 
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Level 4 The top floor was taken by Melquarter Asset management (UK) Ltd in 7th
December 2018 until 6th December 2028. This space represents an area of
272.6 sq m (2,934 sq ft). The FRI lease was set at £396,901 per annum. The
annual rent for this floor is paid in arrears and index-linked to the Consumer
Price Index (CPI).
 
You estimate a current gross initial yield of 4%, an implied growth rate of 2.2% per annum on non-
index-linked rents, a long run average CPI of 1.75%, and a suitable target rate of return of 6%. You
also reckon it will take 12 months after an existing lease ends to find a new good quality tenant under
current Central London market conditions, and you are required to explicitly allow for the rental
income voids that would arise if an existing relocates. The seller is asking for offers over £55,000,000.
 
Your client has asked you to critically appraise the market rent for the office space in the Central
London market, the investment quality of this asset and likelihood of achieving the implied rental
growth rate. In addition, you are required to recommend how much your client should offer to
purchase this asset, and to evaluate and compare the rents achievable, market conditions and rental
growth prospects for prime offices in London Central with the Downtown Manhattan (New York) and
Singapore’s Downtown Core where your client is considering alternative investment opportunities.
 
 
In addition to the investment appraisal and valuation of this prime office, your client has asked you to
undertake the valuation of a series of investments in the Central Belt of Scotland. They would like to
know the market value of the following interests:
 
14/3, 354 Meadowside Quay
Walk, Glasgow Harbour,
Glasgow, G11 6ED.
This one-bedroom lower penthouse apartment is situated on the
fourteenth floor of a Glasgow Harbour development. The modern
property contains an open plan kitchen, living room and dining room
(5.97m x 3.73m), bedroom (3.71m x 2.98m) and bathroom (1.91m x
1.96 m). Additional features include a private balcony, 40m terrace,
views over the River Clyde, lift access, Energy Performance
Certificate C Rating, and secure underground parking space. The flat
is in excellent condition, currently vacant and available for sale, and
has an E Council Tax Band.
Unit 2 Cambuslang Way,
Gateway Glasgow, Glasgow,
G32 8ND.
This modern standalone warehouse is located on a 0.4ha site with access to the national road network via Junction 2A of the M74 and links to the M8 and M73 motorways. The warehouse area is arranged
over the ground floor (629 sq m/6,776 sq ft GIA) with office
accommodation occupying the ground and first floors (309 sq m/3,323
sq ft), and a private yard and parking facilities (210 sq m/2,262 sq ft).
The unit was let on 7th February 2019 on a 15 years lease with three
yearly rent reviews. The current IRI rent is set at £105,867 per annum.
Your client is interested in buying both the heritable and leasehold
interests.
Premier Inn, St Enoch Square, Glasgow, G1 4AG.
This property, fronting on to St Enoch Square and within walking
distance from Glasgow Central Station, comprises a new hotel
accommodating 249 bedrooms, ground floor reception, restaurant and
bar. The property is owned by your client but rented to Whitbread
(who own the Premier Inn chain) until March 2043. After allowing for
staff and other running costs, you estimate that annual earnings before,
interest, taxation, depreciation and amortisation of £2,225,000
represents a fair and maintainable profit for a reasonably competent
operator in this property. You also estimate that 5.25% is a suitable
capitalisation rate for the owner’s interest whereas 7.25% is more
suitable for the leasehold interest. You are required to value both the
heritable and leasehold interests.
 

 
Real Estate Valuation and Appraisal
 
 
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1-3 Charlotte Square,
Edinburgh, EH2 4DR.
Your client current owns 1-3 Charlotte Square, a six storey sandstone
office in Edinburgh. You have been asked by your client for the
market value of this unit which is leased by Walter Scott & Partners
Ltd. The office consists of a total of 1,322 sq m (14,243 sq ft, IMPS3).
 
The unit, let on 7th December 2010 was let on a 25 years FRI lease
with five yearly rent reviews, was reviewed last week at the full
market value.
 
You are required to present a professional report. However, this differs from professional valuation
reports as you are required to present annotated valuations that explain your assumptions, and contain a
critical analysis of comparables and reflective discussion of the methods and principles you are
applying. The report should contain:
 
a. A very brief description of the properties you are required to value.
b. A traditional valuation and DCF investment appraisal for the London property which assumes that the investor plans to buy the property and sell after a holding period of 15 years. Your
appraisal must also account for 5.8% purchase costs and a further 2.5% for disposal costs at the
end of the holding period. Forecasts predict that suitable exit yields, post refurbishment, will be
around 5% for this submarket. You should also allow 5% of the market rent for rent review
costs on leases at every rent review (over and above annual management costs). In addition,
your client has asked you to allow for refurbishment of the property between December 2034
and 2035 which a building surveyor has estimated at a cost of £4,725,000 (estimated as
December 2035 prices). Please note that the space will be unusable during these works so you
cannot collect rent during this last year. You expect to sell the property immediately after the
completion of the refurbishment
 
Also, do not forget to include the car parking in your valuations and appraisals. These spaces
have value too. You estimate the two spaces attached to this property each has a market price of
£20,000 as at the valuation/appraisal date.
 
c. Valuations of the market values, as at 7th December 2020, for the property interests your client has asked you to value. These should be accompanied by a critical discussion of your
comparable evidence, assumptions and methods employed. When valuing the leasehold interest
at Unit 2 Cambuslang Way, your client has asked you to use a suitable Year’s Purchase formula
that makes adjustment for a 2% sinking fund and 21% rate of corporation taxation which the
current occupier is liable for. Remember, current practice tends to use a single Year’s Purchase
formula to value leaseholds but your client has expressly requested a dual rate Year’s Purchase
and allowance for taxation. When valuing the landlord’s and tenant’s interests in Premier Inn,
Glasgow assume the rent represents 60% of the Fair Maintainable Operating Profit.
 
 
Information
Part of this exercise involves you undertaking your own data collection and interpretation of market
evidence. Links to property companies are on the Real Estate Valuation and Appraisal Moodle pages
and in these corporate webpages you can search for suitable local market reports. You should also
undertake further information searches. This should include searching for recent transactions on
CoStar Suite, which should be accessed using the password emailed direct to you. You will be shown
how to use the CoStar database to search for comparable transactions at a CoStar workshop on
Wednesday 14th October 2020.
 
 
 
Submission Arrangements
 

 
Real Estate Valuation and Appraisal
 
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Your valuation report should be submitted no later than 12.00hrs on Monday 7th December 2020.
There is a two-part process for this submission which is as follows:
1. Run the main body of your report (excluding appendices) through Turnitin as draft and final versions before the submission date. Guidance on using Turnitin can be found in the SPS Common Room.
2. Upload a copy of your calculations which should form your appendices either as an excel spreadsheet or pdf of your handwritten calculations to the “Assignment Appendices” facility in
the same section of moodle as the Turnitin facility.
 
Students should ensure that a course coversheet is completed and attached to the front of both copies.
The course coversheet can also be found in the SPS Common Room (Enrolment Key=’SPS’).
 
The late submission of coursework will be penalised. Assignments not submitted by the required
deadline, and without approved extensions, will be subject to a 2 points deduction for each working
day overdue, subject to a maximum of five working days. If an assignment has not been submitted
within five working days of the deadline, the student will be awarded zero (grade H).
 
Marking Criteria
Marks will be awarded for the assignment’s contents, conciseness, clarity and coherence of arguments
and the overall presentation. The report and valuations will contribute to 100% of your overall mark
for the course, and should be 2,500 words in length (excluding the calculations and data analysis in the
appendices which has to be submitted as a separate file) and references. The valuations in the main
body of the report should follow the standard format used in the course notes and be typed. It is
recommended that you include your workings in the appendices, which may either be hand written or
word processed but need to legible, so the markers can follow your calculations.
 
A penalty will be imposed on submissions that go above the 2,500 word limit. Submissions 10-14%
over 2,500 words will be subject to a 1 point deduction; 15-19% over a 2 points deduction; 20-24%
over a 3 points deduction and 25% or more will be awarded a fail (zero) and required to resubmit as a
second attempt. You should also note that while the appendices are not included in the word limit in
this assessment you are restricted to a maximum of 10 A4 sides. This should be more than enough
space for your tabled data and calculations so anyone who goes over the limited number of pages for
their appendices will receive a 2 points penalty deduction.
 
Your submission will be marked in accordance with the following criteria:
• Completion of the valuation and appraisal tasks. Remember, this is a valuation and appraisal exercise testing your ability to apply the principles and methods developed in class so the bulk
of the marks will be allocated to examine how well you perform these tasks. These tasks
account for 55% of the marks which are disaggregated as follows:
o The St James Square dcf investment appraisal (20% of the marks); o The St James Square traditional market valuation (10% of the marks); o Valuation of a residential, hotel and Edinburgh office unit (5% of the marks for each
of these three tasks); o Valuation of industrial heritable interest (6% of the marks); and o Valuation of industrial tenant interest (4% of the marks).
• The quality and quantity of market evidence you present to determine the market rents and yields you apply in your valuations, and the logic you apply when critically evaluating the
suitability of these transactions as comparable evidence (10%).
• Your critical assessment of the Central London investment opportunity, Downtown Manhattan and Downtown Core Singaporean office markets comparisons and quality of advice you give
your client (15%).
• The structure of your report, the clarity of writing and expression, and the depth with which you critically discuss the methods you are applying. You are also expected to make use of
market, academic and professional practice information to support your arguments (15%).
• The level of professionalism demonstrated by the presentation of your report (5%).
 

 
Real Estate Valuation and Appraisal
 
 
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This submission is just before the Winter Break so every attempt will be made to have your
submissions marked and returned to you by Monday 11th January, which is 3 term-time weeks after
you submit. The University will be closed from 18th December until 11th January 2021.
N.B. On no account should you approach any tenants, owners or surveyors for information
regarding your site investigations. Any requests for material must be channelled through Allison
Orr.
 
Further, there are mock real-life scenarios in this brief with some facts altered for the purposes
of this exercise. If you find information that contradicts the details in the brief then always
assume the brief is correct.