3. How much will 3,000 invested now amount to in eight years time if interest is earned at 5 per cent?

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1 Practical exercises Chapter 3 1. A property was purchased at its market value eight years ago of 450,000. At that time, the national index that measures average retail prices was The index number today is The current market value of the property is now estimated at 600,000. Has the investment lost or gained value in real terms over the period of ownership and by what percentage? 2. Red Company has announced a dividend of 9 per cent. Its shares have a face value of 50p and are currently selling at 72p. Blue Company is paying a dividend of 6 per cent. Its shares have a face value of 1 and a current market value of 82p. Which company s shares are returning the higher percentage yield? 3. The annual interest payment received on a sum of 400,000 invested in a bank deposit account is 18,275. What percentage rate of interest is the bank paying? 4. The dividend received on shares owned by an investor for the last 12 months has amounted to 5,244. The investor holds 10,000 shares in the company and the current average value per share on the stock market is What percentage yield on investment does the dividend equate to? 5. An office property was let two months ago on the open market at a rent of 850,000 per annum. Rental levels have remained stable since. The freehold interest in the property has now been sold to a pension fund for 17 million. What percentage yield return on investment have the pension fund acquired at? Chapter 4 1. What is the Amount of 1 for 7 3.5%? 2. Calculate the Amount of 250 for %. 3. How much will 3,000 invested now amount to in eight years time if interest is earned at 5 per cent? 4. An investment was made ten years ago of 22,500 that has accrued interest at 5 per cent. What is its value now? 5. A sum of 1 million is available for investment. The chosen form of investment has averaged a return of 4 per cent per annum for the last 30 years. The current state of the national economy is stable and the government s target on inflation is to keep it below 3 per cent per year. Over the last decade the average inflation rate has been 2.6 per cent. On the assumptions that both the interest rate return on the investment and the inflation rate continue in line with their recent historical averages and the money is invested for For use in conjunction with Michael Blackledge, Introducing Property Valuation. Routledge: London.

2 2 Introducing Property Valuation: Practical exercises the next seven years, what will be the real gain on the investment compared to the purchasing power of the money today? 6. A client invested 17,000 nineteen years ago and a further 25,000 fifteen years ago. Both investments have accumulated interest at 6 per cent. How much does the client have now? 7. A sum of 6,500 was invested seven years ago at 8 per cent. Two years after the investment was made, the interest rate payable changed to 7 per cent. What is the current value of the investment? 8. An investor placed into a savings account 50,000 seven years ago and then a further 60,000 three years ago. These sums have earned net interest of 4.5 per cent throughout. How much does the investor now have saved? 9. A sum of 12,000 was placed in a bank deposit account nine years ago, followed by a further sum of 15,000 six years ago. The interest rate payable on the account has varied. At the start it was 6 per cent, but after four years it changed to 5 per cent, at which rate it has remained up to today. How much is currently in the account? 10. An investor placed a sum of 50,000 in a savings account five years ago and now intends to invest a further 70,000. If interest over the last five years has accrued at 4.5 per cent and from now onwards will be 5.5 per cent, how much will be in the savings account in six years from today? 11. A client owns a freehold property, which was let recently on a twenty-year full repairing and insuring (FRI) lease with five-yearly rent reviews. The current rent is 40,000 per year. It is estimated that rents are likely to grow on average at 2 per cent per annum for the next fifteen years. Calculate what the market rent for the client s property can be expected to be at each rent review, in five, ten and fifteen years from now. 12. Explain how Present Value of 1 can be found from an Amount of What is the Present Value of 1 for %? 14. Find the Present Value of 8,500 for 31 3%. 15. What is the present value of a sum of 220,000 receivable in 18 years time from today if the interest rate is 9 per cent? 16. What would an investor pay today to buy an investment that is expected to sell at 42,000 in eight years from now, allowing for interest at 6 per cent? 17. What amount of money would need to be invested today if the sum of 100,000 was required in eight years from now and savings earned interest at 5 per cent after tax each year? 18. What is the present value of 80,000 payable in 4 years 6 months from now, allowing for interest at 4.85 per cent per annum? 19. What is the value today of 11,500 payable in 28 months from now allowing for interest at 4 per cent per annum? 20. A client owns a piece of land. He anticipates being able to gain planning permission to develop it in two years time, by when it is estimated that its market price will be 300,000. How much could the site be sold for today if it is considered to be an investment that would attract a 9 per cent per annum yield? 21. How much would need to be invested today at 7.25 per cent to have 450,000 available in 25 years time? For use in conjunction with Michael Blackledge, Introducing Property Valuation. London: Routledge.

3 3 Introducing Property Valuation: Practical exercises 22. What would be the total current value of an investment which pays the following sums, allowing for interest at 3.5 per cent: 10,500 in three years from now plus 8,000 in eight years from now plus 12,000 in thirteen years from now? 23. A freehold building is for sale at 1 million as an investment, having recently been let at 78,000 per annum. What annual rate of return on investment does this represent? 24. What is the all risks yield on a freehold property that has a market rent of 320,000 per annum and a market value of 4 million? 25. An annual sum of 4,000 has been placed in a savings account every year for the past eight years. The account has paid interest at 6 per cent per annum throughout. How much is now in the account? 26. An investor deposited 50,000 in an account seven years ago and has also made payments into the account of 5,000 per annum at the end of each year for the last six years. The account has been returning a 4 per cent per annum interest rate. What sum of money is now in the account? Chapter 5 1. What is the annual sinking fund for 1 for six years at 4 per cent? 2. Calculate the annual sinking fund for 150,000 for 12 years at 3 per cent. 3. It is anticipated that a property owned by a client will require a new roof to be fitted in seven years time. The cost of this work is estimated at 50,000. Advise the client how much she will need to set aside now in order to have the required sum available at the appropriate date if the interest rate on her savings will be 4.5 per cent per annum. 4. Clients have purchased a leasehold interest today for 80,000. How much would they need to invest per annum in a sinking fund at 3.25 per cent to recover their outlay by the end of the lease in 15 years time? 5. What is the sinking fund per annum on an 18-year leasehold interest, currently valued at 75,000 and allowing for net interest at 4.25 per cent? 6. An investor can obtain 5.5 per cent gross on a sinking fund investment. How much would he need to invest per annum over nine years to recover 45,000, if he pays income tax at 40 per cent? 7. A client requires the sum of 100,000 to be available to him on his retirement in six years time. To this end, he has been investing 4,000 per annum for the past six years at 4.75 per cent. The interest rate he can obtain has now changed to 5 per cent. Advise him what amount he will need to invest from now on per annum in order to achieve the desired total on his retirement. 8. A client has invested 2,500 per annum for the last nine years until today in a sinking fund which up to today has paid 3.75 per cent per annum net of tax. The client requires the fund to accumulate to the sum of 50,000 in three years from now. How much should she invest per annum from now on to achieve this target if the gross interest rate has changed to 4 per cent and she pays income tax at 40 per cent? 9. A leasehold interest has just been purchased for 60,000. The lease is due to expire in 11 years 4 months from now. What will the sinking fund instalments be at 5 per cent gross if tax is paid at 28 per cent? 10. What is the annuity 1 will purchase for 15 years at 13 per cent? 11. Find the annuity 160,000 will purchase for 18 years at 11 per cent. 12. What are the annual mortgage repayments on 250,000 at 7.5 per cent for 25 years? For use in conjunction with Michael Blackledge, Introducing Property Valuation. Routledge: London.

4 4 Introducing Property Valuation: Practical exercises 13. A loan of 25,000 has been advanced at 12.5 per cent for five years. What repayments are required per annum? 14. What are the annual repayments on a mortgage of 190,000 over 20 years at 8.5 per cent? 15. Find the monthly repayments on a mortgage of 240,000 over 22 years at 7.25 per cent. 16. If the repayments on a loan for ten years are 3, per annum at 8.75 per cent, how large was the loan? 17. If a loan of 15,000 is taken at 12 per cent for six years, and the borrower wished to repay it in full after only three years of the term, how much would they need to pay ignoring any early repayment penalties? Chapter 6 1. What years purchase in perpetuity (YP perp) number would be obtained from these all risks yields (ARYs)? a. 5 per cent. b. 6 per cent. c. 7 per cent. d. 9 per cent. e. 11 per cent. f per cent. 2. What all risks yield (ARY) percentage do the following years purchase in perpetuity (YP perp) numbers represent? a. 5 b. 8. c. 10. d e f What is the capital value of an investment providing an annual income of 200,000 in perpetuity, if valued at 6.75 per cent? 4. How much would be paid to buy a freehold interest with a market rental value of 80,000 per annum at a yield of 8.5 per cent? 5. What is the annual income from an investment if its capital value is 1,200,000 and it was valued at 8 per cent yield? 6. A client is considering purchasing a freehold property with a current market rent value of 150,000 per annum. An assessment of current conditions indicates it should provide an all risks yield of 7.5 per cent. What should the client offer for the freehold? 7. A prospective purchaser is considering buying the freehold interest in a property, which is being marketed at an asking price of 950,000. Assuming an all risks yield of 6.8 per cent has been found from comparable market evidence, what is the anticipated market rent for the property? 8. A freehold building is for sale at 2.1 million as an investment, having recently been let at 175,000 per annum. What annual rate of return on investment does this represent? 9. What is the YP for 15 years at 9 per cent? For use in conjunction with Michael Blackledge, Introducing Property Valuation. London: Routledge.

5 5 Introducing Property Valuation: Practical exercises 10. What is the value today of 60,000 per annum receivable for the next three years allowing for a 7.25 per cent yield? 11. What is the present value of an interest providing an income of 87,500 per annum from now for the next two years at 11 per cent? 12. An investment that will provide an income of 38,350 per annum for the next ten years has just sold for 200,000. What yield does this represent? 13. An income of 30,000 per annum is to be received from today and lasting for the next seven years. What is the present value of this income if interest is calculated at 7.5 per cent per annum? 14. What is the income from an investment with a capital value of 2,000,000 if the yield is 12 per cent and the income will last for the next 15 years? 15. What is the YP of a reversion to perpetuity after six years at 13 per cent? 16. If a freehold has been valued at 1,200,000 and a yield of 6 per cent, where there will be no income for the next three years, what is its expected rental value on reversion? 17. Value a freehold interest let at a peppercorn rent from now for the next two years, if its market rent is 400,000 per annum and yield is 11 per cent. 18. What would be paid to acquire an investment providing an income of 60,000 per annum in perpetuity commencing three years from now, using a yield of 8 per cent? 19. What is the YP for 12 years deferred four years at 9 per cent? 20. An income of 25,000 per annum is to be received for a period of eight years, commencing two years from today. Allowing for interest at 5 per cent per annum, what is the present value of this income? 21. Value an interest at 7 per cent yield with an income commencing in three years from now of 90,000 per annum, which will end in 11 years from now. 22. What is the value now of 70,000 per annum for five years only at a yield of 5 per cent, the reversion to it being in four years time and with no income received in the mean time? 23. What is the income from an investment with a capital value of 300,000, if the yield is 8 per cent and the income will last for 25 years commencing four years from now? 24. What is the YP for five years at 8 per cent and 3.2 per cent? 25. Value an interest with an income of 10,000 per annum for the next seven years at 10 per cent and 4 per cent. 26. What would a purchaser pay to buy a leasehold interest providing a net profit rent of 26,500 per annum for the next four years at 12 per cent and 5 per cent with no tax payable? 27. Assuming 7 per cent gross can be achieved on a sinking fund and tax is paid at 40 per cent, what would an investor pay to buy a leasehold interest with an unexpired term of seven years and which provides a profit rent of 25,250 per annum, if allowing for a yield of 14 per cent? 28. Value a leasehold interest providing a net profit rent of 39,000 per annum over the next five years at 12 per cent and 6 per cent (gross) if tax is payable at 20 per cent. For use in conjunction with Michael Blackledge, Introducing Property Valuation. Routledge: London.

6 6 Introducing Property Valuation: Practical exercises 29. A client that pays income tax at 28 per cent is interested in buying a leasehold interest in a property. The current lease has five years left to run, without rent review, at a rent of 20,000 per annum. The estimated current market rent for the property is 25,000 per annum and all risks yields for similar leasehold properties in this location are currently 11.5 per cent. How much should the client expect to pay to buy the unexpired leasehold interest in the property allowing for a gross sinking fund rate of 4.25 per cent? 30. A company paying tax at 21 per cent can obtain 3.5 per cent net on their sinking fund investments and wishes to buy a leasehold interest in a property which has an unexpired term of six years, without review, and which produces a net profit rent of 6,500 per annum. Allowing for an all risks yield of 12 per cent, advise the company how much they would be able to pay to purchase the leasehold. 31. What is the YP for six years deferred three years at 9 per cent and 3 per cent? 32. What is the years purchase for ten years deferred four years at 11 per cent and 3 per cent (net) with tax at 30 per cent? 33. What is the value of a leasehold investment that provides no income at present, but will provide a net profit rent of 42,000 per annum for a period of four years, commencing in two years time, allowing for an all risks yield of 9 per cent, a gross sinking fund rate of 6 per cent and tax at 40 per cent? Chapter 7 1. What is the years purchase single rate for six years at 7 per cent on: a an annually in arrear basis? b. a quarterly in advance basis? c. a half-yearly in advance basis? 2. Value an income of 25,000 per annum on a single rate quarterly in advance basis at 8 per cent for the next five years. 3. What is the compounded total annual rate of interest obtained from an investment that pays 2.25 per cent per quarter year? 4. Value each of the following investments on a quarterly in advance basis: a. an income of 50,000 per annum commencing in three years time and then lasting in perpetuity, allowing for a yield of 7.5 per cent. b. a freehold property let at its full market rent of 125,000 per annum where the all risks yield is 6.25 per cent. c. a leasehold investment providing a profit rent of 25,000 per annum for the next five years and where all risks yield is 9.5 per cent, the gross sinking fund interest rate is 4 per cent and the investor pays tax at 30 per cent. Chapter 8 1. What are the imperial measurement equivalents of these familiar metric distances: a. 100 metres? b. 400 metres? c. 1 kilometre? d. 5 kilometres? 2. Convert the following metric areas into their Imperial equivalent measurement: a. 125 square metres. b. 550 square metres. For use in conjunction with Michael Blackledge, Introducing Property Valuation. London: Routledge.

7 7 Introducing Property Valuation: Practical exercises c. 1,250 square metres. d. 11,500 square metres. e. 24 hectares. 3. What are the metric equivalents to the following Imperial measurements: a. 12 feet 6 inches (12 6 )? b. 16 feet 8 inches (16 8 )? c. 23 feet 2 inches (23 2 )? d. 4 miles? e. 6¼ miles? f. 27½ miles? g. 104 acres? h. 1,250 cu.ft? 4. Think of how you would measure land and buildings familiar to you where you live or work for example. Consider the practicalities of how you would accurately obtain the necessary dimensions and what parts would be excluded when calculating GIA (gross internal area) or NIA (net internal area). 5. Obtain some scale plans of buildings and, using an appropriate scale ruler, practice taking off the dimensions and calculating the areas of the building. Visit the actual building and compare measurements taken on site with those taken from the plans to check the accuracy of the plans. Reflect on whether it would be appropriate to base a valuation solely on areas found from the plans. 6. Make sure the mathematical rules for calculating the areas of different shapes are known and can be applied. For instance, the area of a triangle is found from half base length multiplied by vertical height. Do you understand what this means and could you find the area of any triangular shape? Maybe you will need to revisit and reread a basic text on mathematics to become familiar again with such techniques? Chapter A freehold industrial property has just sold for 820,000. It measures 850 square metres. Market rents for similar properties are currently around 75 per square metre per annum. The building has been sold with vacant possession (VP). What all risks yield does the sale represent? 2. Value the freehold interest in a site of 1 hectare that has planning permission for development at a density of 40 dwellings per hectare. A similar, comparable site of 1.5 hectares, which has planning permission at a density of 33 dwellings per hectare, has recently sold for 2,000, A client has just purchased the freehold interest in an office building for 3 million. The building has a net internal floor area (NIA) of 788 square metres. The deal was based on achieving an all risks yield of 5.25 per cent. What would the estimated market rent for this property be based on these figures, both in total and per square metre? 4. Value the market rental value of an industrial unit with a gross internal floor area of 2,750 square metres A nearby comparable building of 3,100 square metres that is identical to the subject apart from size has recently been let on the open market for 217,000 per annum. 5. Value the market rent of an office building with a net internal floor area of 750 square metres. Two very similar nearby buildings have recently let on the open market. One has a net floor area of 600 square metres and let for 185,000 per annum. The other measures 900 square metres NIA and has let at 265,000 per annum. 6. Value the freehold interest in a retail property arranged on ground, lower ground and mezzanine levels plus storage at first floor level. The building has the following dimensions and floor areas: For use in conjunction with Michael Blackledge, Introducing Property Valuation. Routledge: London.

8 8 Introducing Property Valuation: Practical exercises Net frontage = 16.5m. Shop net depth = 20m. Built depth = 27m. Lower ground floor sales = 260 sq.m. Ground floor sales = 297 sq.m. Mezzanine floor sales = 270 sq.m. First floor stock = 302 sq.m. Comparable evidence indicates that freehold values for this type of property are 60,000 per square metre ITZA. (Note that net frontage net shop depth = = 330 square metres but actual ground floor sales area only = 297 square metres. This is because 33 square metres at rear of shop is not area included in the NIA, being occupied by a staircase, lift and toilet/washroom occupying what would effectively have been zone D.) 7. The freeholders of a retail unit require advice on a forthcoming rent review. The unit is a sports and leisurewear store and is situated on a corner in a good location within a major town. The main frontage faces on to the High Street. There is a return frontage that faces on to a covered, pedestrian mall. The store has upper and lower floors, which are reached by escalators and stairs. The building has the following dimensions (all measured on a net internal floor area basis): Net frontage = 12.5 m. to High Street (in addition the return frontage is 8 metres to the side of the property as it is on a corner) Retail sales area net depth = 16 m. Built depth = 28 m. Total ground floor sales = 190 sq.m. (10 sq.m. at rear of shop is taken up with stairs and lift) Ground floor ancillary floor space = 130 sq.m. Lower ground floor sales = 170 sq.m. Lower ground floor storage = 150 sq.m. Mezzanine floor sales = 105 sq.m. First floor stock area = 285 sq.m. Comparables show that zone A rental values of standard shop units in the High Street are 1,800 per square metre if they are fully fitted and let on new full repairing and insuring leases for ten or fifteen years with five-yearly rent reviews. The present lease commenced seven years ago and is for a term of 21 years. There are upwards-only rent reviews every seven years to open market rental value. The rent at review is to be assessed assuming vacant possession and a lease term of 21 years. The lease is on full repairing and insuring terms. The user clause permits use for a sports and leisure goods store only. Other market evidence obtained suggests that the following adjustments are reasonable: tenants are currently only seeking leases of up to ten years in length and would look for a discount of 5 per cent from the rent to take one of 21 years duration; landlords would look for an increase of 3 per cent to agree to 7 yearly rent reviews rather than 5 yearly to help offset the less frequent rental increase; and the user clause on the lease is considered a little restrictive and rents on other premises subject to similar restrictions have been discounted by 10 per cent to reflect this. Provide a valuation for the freeholders on the new rent they could expect to achieve at the rent review. 8. A freeholder has expended 200,000 on improving her property. The expected useful life of this improvement is 20 years. She obtains a yield of 11 per cent on her investment. Calculate the annual equivalent of this expenditure and explain why this calculation may be required. 9. What are the annual equivalents of the following capital sums: a. 175,000 over next 7 years allowing for single rate all risks yield of 6%? For use in conjunction with Michael Blackledge, Introducing Property Valuation. London: Routledge.

9 9 Introducing Property Valuation: Practical exercises b. 185,000 over next 5 years 6 months allowing for single rate all risks yield of 7.25%? c. 225,000 over next 8 years allowing for dual rate approach of 9% yield, 5% gross sinking fund rate and 28% tax? 10. A tenant of a property is prepared to spend 125,000 on improving her property. The improvement is expected to have a useful life of 15 years. The tenant is looking for an all risks yield return on this investment at 8 per cent per annum. Allowing for a net return on sinking fund investments of 3 per cent and a tax rate of 40 per cent what is the annual equivalent to the tenant of this expenditure on improvements? Chapter A freehold property has just been let to a tenant with the first two years rent-free and with market rent payable thereafter. The building has a floor area of 750 square metres and current market rents for similar properties are 90 per square metre per annum. Allowing for an all risks yield of 6.2 per cent, what is the present value of this freehold? 2. A client is interested in buying a leasehold interest in a small workshop unit. The current lease has four years left to run, without rent review, at a rent of 25,000 per annum. The estimated current market rent for the property is 32,000 per annum and all risks yields for similar leasehold properties in this location are currently 9.5 per cent. Advise the client how much she should expect to pay to buy the unexpired leasehold interest in the workshop allowing for tax at 40 per cent and gross sinking fund interest rate of 5 per cent. Then calculate and explain what an estimate of the freehold investment market value would be in the same workshop. 3. A Public Limited Company (PLC) client is interested in buying a leasehold interest in a property. The current lease has five years left to run, without rent review, at a rent of 200,000 per annum. The estimated current market rent for the property is 250,000 per annum and all risks yields for similar leasehold properties in this location are currently 8.5 per cent. Allowing for tax at 28 per cent and a gross interest rate of 5 per cent on annual sinking fund instalments, how much should the client expect to pay to buy the unexpired leasehold interest in the property? 4. Value the premium to be paid by the tenant for a new lease on a shop property where the rent for the first five years will be 50,000 per annum. The lease is for 15 years with five-yearly rent reviews to open market rent value and the current estimated rental value is 100,000 per annum. Leasehold all risks yield on similar properties is 7 per cent. The tenant pays tax at 20 per cent and can obtain 3.5 per cent gross on annual sinking fund instalments. 5. Value a freehold office building that was let to a tenant seven years ago on a ten-year lease with no rent review. The tenant is responsible for all repairs and insurance and pays a rent of 250,000 per annum. The net internal floor area of the premises is 1,650 square metres. Two other office buildings close to the subject property have recently been let on the open market. Bannister House measures 1,400 square metres. NIA and has been let on a 15-year FRI lease with fiveyearly rent reviews at a commencing rent of 280,000 per annum. Coe House has a floor area of 2,010 square metres and has been let at 360,000 per annum on a five-year FRI lease, without rent review. Market evidence further indicates that the freehold all risks yield for such properties is currently 7.5 per cent. Analyse the comparable evidence and prepare a market valuation of the freehold interest in the subject property on a traditional term and reversion basis. Estimate the equivalent yield and provide a supporting valuation using this and the hardcore/layer approach. Based on the calculated capital value find what initial and reversionary yields this value represents. 6. Value ALL the interests in the following small industrial estate. There are three units. The buildings are five years old and have been well maintained. There are adequate car parking and loading/unloading facilities on site. All the units have good eaves height, and are lit, heated and have sprinkler systems throughout. They all have a similar percentage of office contents. Comparables indicate that similar industrial units nearby For use in conjunction with Michael Blackledge, Introducing Property Valuation. Routledge: London.

10 10 Introducing Property Valuation: Practical exercises are fetching rents of between 55 to 60 per square metre per annum on full repairing and insuring lease terms. Current market evidence of all risks yields for similar properties in the same location shows that 7 per cent is being achieved on freehold investments where the market rent is being received and 8.25 per cent on leaseholds. ABC Investments are the freeholders of the estate. They have granted the following leases, all on full repairing and insuring terms: XYZ Ltd have a five-year lease that commenced three years ago on unit 1 at a rent of 50,000 per annum. The unit measures 1,000 square metres on a gross internal basis. The tenants pay tax at 21 per cent and can obtain around 4 per cent gross on their sinking fund instalments. RST Inc. have a twenty-year lease with five-yearly rent reviews on unit 2 that was granted four years ago. Their present rent is 100,000 per annum and the unit has a floor area of 2,000 square metres. RST pay 28 per cent tax rate and also obtain 4 per cent gross on sinking fund instalments. DDP & Co holds a 12-year lease on unit 3 that commenced two years ago. The lease has three-yearly rent reviews and the current passing rent is 85,000 per annum. The unit comprises 1,500 square metres total. 7. Haydock House is a three-storey office building in the secondary office district of a south coast city. The property, built 15 years ago, comprises 750 square metres net and has been maintained to a good standard. The accommodation includes double-glazing, lift and central heating. The property is occupied by Goodwood plc on a lease with ten years remaining at a rent of 70,500 per annum without review. The lease is on IRL terms and the landlord pays 6,000 per annum to insure the building. In the same road, there are a number of similar properties where transactions have taken place recently, as follows: Ascot House is a four-storey office built 11 years ago and comprises 945 square metres. The property is well maintained and has a lift, double-glazing and air conditioning. The property was let for 25 years on FRI terms from this year at a rent of 85,000 per annum. Sandown House is a five-storey office building, also constructed 11 years ago, comprising 1,170 square metres of well-maintained accommodation. The property was let ten years ago on FRI terms for a term of 20 years and the rent was reviewed with effect from this year to 102,400 per annum. Last week the building was sold, freehold, for 930,700. Chester Court is a three-storey office, built 14 years ago, and comprises 680 square metres. net. The property has a lift and central heating but is in rather poor decorative condition. The property was let this year on IRI terms at a rent of 73,750 per annum. Goodwood plc would like to purchase the freehold of Haydock House. In this respect, they have asked to be provided with the following valuations: a. The market value of the present freehold interest in the property held by their current landlord. b. The market value of the present leasehold interest held by Goodwood on basis they pay tax at 28 per cent and can obtain 3 per cent net on a sinking fund. c. The market value of the freehold if the property was available with vacant possession as opposed to being occupied by Goodwood under their current lease. Fully analyse the comparable evidence to find open market FRI rents and yields and carry out investment method valuations in order to advise the company accordingly. Consider the above valuations to see if there is the potential for a deal to be offered by Goodwood to the present freeholder whereby the owner could be persuaded to sell the freehold by being offered more than the current market value and yet Goodwood still end up making a profit from the deal. On this basis, what price could Goodwood afford to pay to buy the freehold? 8. Value the head and sublessees interests in a warehouse near a major airport. The single-storey building has a GIA of 1,000 square metres including a two-storey office content of 100 square metres. Similar buildings on the same estate are currently letting at 60 per square metres. It is sublet on a 25-year lease on FRI terms to For use in conjunction with Michael Blackledge, Introducing Property Valuation. London: Routledge.

11 11 Introducing Property Valuation: Practical exercises a company for storage purposes, granted 13 years ago with five-yearly rent reviews. The current rent payable is 47,500 per annum. The company pay tax at 21 per cent. The head lessee holds a ground lease for 99 years, with 22 years unexpired, at a fixed rent of 1,500 per annum. This company pays tax at 30 per cent. From analysis of comparables, an all risks leasehold yield of 12 per cent and a net sinking fund rate of 4.5 per cent appear appropriate. Value both the head leasehold and subleasehold interests. 9. A property company is interested in purchasing the head lease of an office building. The net internal floor area of the building is 223 square metres per floor on each of four floors. The building is at present occupied by a sublessee who holds a lease for ten years, granted six years ago, without review. The rent payable under this sublease is 225,000 per annum on full repairing and insuring terms. The full market rent value is estimated at 270 per square metre. The head lease has an unexpired term of 16 years at a fixed rent of 25,000 per annum. Allowing for payment of tax at 28 per cent, an all risks yield of 8 per cent and gross sinking fund rate of 4 per cent, advise the company what price they should expect to pay to purchase the head leasehold interest. 10. Premises on an industrial estate were let three years ago on a ten-year lease with no rent reviews. The passing rent is 60,000 per annum on a full repairing and insuring basis. The gross internal floor area is 1,300 square metres. A comparable unit on the estate has recently been let on a 15-year FRI lease with five-yearly reviews at 135,000 per annum. It has a floor area of 2,000 square metres, but is otherwise very similar to the subject property. Using an all risks yield of 9 per cent when market rent is receivable, value the freehold interest in the subject property on a conventional annually in arrear term and reversion basis to conclude what the open market value is considered to be. Based on this capital value, what equivalent yield is achieved? Assess an appropriate marginal yield rate and value the interest by the hardcore method to arrive at the same capital value as found by the conventional approach. What difference would there be in the above valuation if valued on a quarterly in advance rental basis? 11. Value the freeholder s interest in an office building let on internal repairing terms only. The net internal floor area (NIA) is 1,220 square metres and the gross internal area (GIA) 1550 square metres. The lease is for ten years, without review, with five years unexpired, at a rent of 110,000 per annum. From comparables, let on full repairing and insuring terms, the current estimated rental value is 130 per square metre and the all risks market yield 6.5 per cent. Current rebuilding costs are estimated at 1,300 per square metre on GIA and the insurance premium that has been quoted is on the basis of 35p per 100 insured. 12. A twenty-year lease of an industrial unit is to be assigned. The lease provides for only one rent review, after ten years, and has an unexpired term of four years. The tenant is responsible for internal repairs only. Current rent payable is 55,000 per annum, and from comparables it is estimated that the market rent would be 85,000 per annum, if the property were let on FRI terms. Nearby properties let at market rent show a leasehold yield of 10 per cent. What price is expected to be payable on assignment for the leasehold interest assuming a tax rate of 28 per cent and gross annual sinking fund interest at 4.25 per cent? Value the freehold in this same building on the basis that market evidence indicates freehold all risks yield for similar properties is 8.5 per cent. 13. If comparables to find market rent (MR) are all on full repairing and insuring (FRI) basis and the property to be valued is let on internal repairing terms (IRT) only and at less than MR, what adjustments would need to be made and how would they be made in assessing the following: a. The freeholder s rental income to be valued for the term and the reversion. b. The rent receivable by the tenant and the rent payable when finding the net profit rent to value the leasehold interest? 14. Value the leasehold interest held in a High Street shop. It is occupied on an internal repairing lease for a term of seven years granted three years ago at a rental of 50,000 per annum without review. From comparables For use in conjunction with Michael Blackledge, Introducing Property Valuation. Routledge: London.

12 12 Introducing Property Valuation: Practical exercises based on FRI terms current market rent is estimated to be 70,000 per annum, the all risks leasehold yield to be 7.5 per cent and net sinking fund rate 2.5 per cent after tax at 28 per cent. Chapter A client wants to purchase a shop investment let at a market rent of 80,000 per annum. Her target equated yield is 10 per cent. Probable growth rate in rental income is estimated to be 3 per cent per annum compound. Using the discounted cash flow method, assess the worth to the client of the freehold interest assuming fiveyearly rent reviews. 2. A company wants to purchase a retail investment let at a market rent of 420,000 per annum. The company s target equated yield is 9 per cent. Probable average rental growth rate is 2.5 per cent per annum compound. Using the discounted cash flow method, assess the worth to the client of the freehold interest in this property, assuming three-yearly rent reviews. 3. An investor is seeking an equated yield of 9 per cent on a property investment let on a tenancy at market rent with five-yearly rent reviews. If comparable market evidence indicates an all risks yield of 7 per cent is expected, what will be the implied annual rental growth rate? From historical evidence and current forecasts, an average annual rental growth rate of 3.5 per cent is considered applicable to this investment. What all risks yield will be returned if the equated yield target is to be met? 4. Value the freehold interest in a property let at a rent of 50,000 per annum for the next three years. The current market rent is estimated at 75,000 per annum and rental growth rates are estimated at 3 per cent per annum. When the current lease ends, the property would be relet on normal market terms, which would be FRI and with five-yearly rent reviews. Market all risks yields at present for this type of property are 8 per cent and equated yields are around 10.5 per cent. 5. An industrial property measuring 1,200 square metres GIA is occupied by a tenant on a twenty-year FRI lease with five-yearly rent reviews, granted three years ago. Current rent payable is 72,000 although recent lettings of similar nearby properties indicate that market rents are now 70 per square metre per annum. Other market evidence shows that freehold all risks yields when let at market rent are 8 per cent, with equated yields of 10.5 per cent and expected rental growth at 3 per cent per annum. Value the freehold interest in the property using both the traditional and discounted cash flow approaches. 6. Office premises were let seven years ago on a twenty-year lease with an upwards-only rent review after ten years. The rent currently payable is 320,000 per annum on a full repairing and insuring basis. The net internal floor area of the building is 2,200 square metres. Two nearby comparable office buildings have recently been let on the open market. Macduff House has a floor area of 1,500 square metres and was let on a 15-year FRI lease with five-yearly reviews at 300,000 per annum. Macbeth House measures 3,200 square metres and has let on similar lease terms for 575,000 per annum. a. Using an all risks reversionary yield of 8 per cent, value the freehold interest in the subject property on a conventional term and reversion basis. b. Based on the capital value above, what equivalent yield is achieved? c. Making an assumption that average annual rental growth prospects in the future will be 2.5 per cent per annum and based on the capital value calculated in (a) above, undertake a discounted cash flow valuation of the property to show what equated yield (internal rate of return) will be obtained on the investment. 7. A property company wishes to purchase the freehold interest in an office building that currently produces a rental income of 250,000 per annum. The property is let on full repairing and insuring terms on a twenty- For use in conjunction with Michael Blackledge, Introducing Property Valuation. London: Routledge.

13 13 Introducing Property Valuation: Practical exercises year lease granted two years ago and is subject to five-yearly upwards or downwards rent reviews. The present market rent of the property is estimated at 300,000 per annum. Market evidence indicates that the following can be assumed for this property: all risks yield of 7 per cent; equivalent yield of 6.95 per cent; equated yield of 9.6 per cent; rental growth of 3 per cent per annum. Using this information undertake an assessment of the market value (MV) of the freehold interest in the property using: a. traditional/conventional methods on both term and reversion and equivalent yield approaches; and b. hardcore or layer method; and c. discounted cash flow analysis. Chapter An office development is to be undertaken. The construction costs and areas involved are as follows: offices = 5,120 sq.m. gross internal 2,000 per sq.m. surface car parking = 1, per sq.m. landscaping = per sq.m. What is the total of the construction costs? 2. A mixed-use development is being contemplated, to comprise 3,100 sq.m. gross internal area (GIA) of offices (2,250 sq.m. net internal area) and 3,840 sq.m. GIA of retail space. The retail space is to comprise 12 shop units, each measuring 8 metres net frontage by 20 metres total depth on ground plus one upper floor. The rear 4 metres of the depth on the ground floor and half the area on the first floor of each unit will be used for storage and ancillary uses, with the remainder of each property providing sales floor areas (in other words sales depth on ground floor is 16 metres net). Assume no deductions need to be made from any of the net dimensions to arrive at net internal areas. Market comparable evidence indicates the following: Office rents are 250 per sq.m. per annum based on net internal area (NIA). Shop rents are 2,000 per sq.m. zone A per annum (based on 6 metres deep ITZA zones). Freehold all risks yields are 6 per cent for offices and 5.25 per cent for retail. a. What is the estimated gross development value of the proposed development? b. Assuming the completed project will first be fully let to tenants and then the whole development sold as an investment, what will be the agents and legal fees involved assuming: letting fees at 10 per cent of the first year s market rent; sale fees at 3 per cent of the GDV? 3. Total development costs for a project are estimated at 15 million. What will be the total sum of interest payable assuming a development period of two years and allowing for interest per annum being at each of these rates: a. 7%? b. 7.5%? c. 8%? d 8.25%? e 9%? For use in conjunction with Michael Blackledge, Introducing Property Valuation. Routledge: London.

14 14 Introducing Property Valuation: Practical exercises 4. Total development costs for a project are estimated at 11.5 million. What will be the total sum of interest payable assuming the following development periods and allowing for interest per annum being at each of these rates: a. 1 year 9 7%? b. 2 years 3 7.5%? c. 1 year 8 8%? d. 2 years %? e. 3 years %? 5. A proposed development produces the following figures: GDV = 20 million. all costs including an allowance for developer s risk and profit, but excluding all sums associated with initial purchase of site = 15 million. Assuming a development period of 2 years 3 months, an interest rate of 8 per cent and site purchase costs of 5 per cent, what will be the residual site value? 6. The GDV of a project is estimated at 15.5 million and all the costs, including site purchase, are expected to total million. How much is the estimated developer s risk and profit margin, both in s and as a percentage of GDV or costs? 7. Value the freehold interest in a development site, the details of which are as follows. Net site area is 1.72 ha. Planning permission has been obtained for the construction of industrial/distribution buildings measuring 9,500 sq.m. gross internal floor area (GIA). On completion of the development, it is estimated that the new buildings can let for 85 per sq.m. per annum (based on gross internal floor area) if let on ten- or fifteen-year full repairing and insuring leases with five-yearly rent reviews. Freehold all risks yields are currently 6.25 per cent for such buildings in this location. The construction work of the main buildings is expected to cost 775 per sq.m. assessed on GIA, plus there will be site clearance and preparation costs of 70,000, landscaping expenses of 90,000 and surface car parking/loading area construction work for 0.7 ha at a cost of 50 per sq.m. Finance is obtainable at 6.25 per cent. The total development project is expected to take 1 year 6 months from commencement to completion, full-occupation by tenants and sale of the freehold investment. Other costs are estimated as follows: other initial costs plus a contingency sum = 200,000; architect, QS and other construction professional fees = 12 per cent of construction costs; agents and legals on letting: =10 per cent of market rent; agents and legals on investment sale = 3 per cent of gross development value; site purchase costs = 6 per cent; developer s risk and profit is to be assessed as average of 10 per cent of GDV and 15 per cent of costs. Prepare a valuation to show what price a developer can expect to pay to purchase this site. 8. A property development company is considering developing a freehold site that is available to purchase at a price of 7 million. The land is within a town centre district and has some old run-down retail units on it at present. Most of these are currently empty and boarded-up, but there are two units still occupied by tenants. Compensation payments have been agreed with both these tenants in the sum of 75,000 each for them to vacate their properties. The developer intends to demolish the existing buildings on the site and construct a new mixed development of retail and offices in their place. Outline planning permission has been obtained for this proposal. There are to be ten retail units (on ground and first floors only) each with a gross frontage of 8m and a depth of 20m, with three floors of offices above the shops (i.e. the building will have five floors in total). The client intends to let all the new shops and offices to tenants at market rents and when fully let will retain the freehold interest as an investment. For use in conjunction with Michael Blackledge, Introducing Property Valuation. London: Routledge.

15 15 Introducing Property Valuation: Practical exercises The following is to be assumed: Market rent values for new shop premises in this location are 1,800 per sq.m. ITZA and for offices 160 per sq.m. Freehold all risks yield for shops is 6 per cent and for offices 7 per cent. Demolition costs and site clearance will be 70,000. Planning application fee to obtain full consent is expected to be 15, ,000 is to be spent on promotion and marketing. Construction costs exclusive of fees and based on gross internal floor area (GIA): shop 1,500 per sq.m. 1,900 per sq.m. Floor areas are as follows: GIA for each retail unit will be 310 sq.m. The net internal measurements for each retail unit are to be 7.5 metres frontage and 17 metres depth on the ground floor and the first floor. NIA will be 130 sq.m. (allowing for deduction of non-net areas such as stairs, washrooms, etc.). The ground floor of each retail unit will only be used for sales and the first floor for storage and ancillary offices. The office accommodation GIA will be 4,700 sq.m. and its net internal floor area (NIA) will be 3,300 sq.m. The development period will be 21 months in total from site acquisition to completion and full occupation by tenants. Interest payable on borrowed funds will be 7.75 per cent per annum. An allowance for unforeseen costs and contingencies of 500,000 is to be made. Fees for architects, quantity surveyors and other construction professionals will be 13 per cent of total costs. Agents and legal fees on letting of the completed buildings to tenants will be 10 per cent of the market rents. Site purchase costs and fees including Stamp Duty Land Tax is estimated to be 7 per cent of the site value. The client requires a sum for risk and profit of at least 15 per cent of the total costs of the project. Show how it can be recommended that the freehold in the site is purchased at the proposed price of 7 million; and should the client proceed to purchase at that price, calculate what actual sum of money will be available as an allowance for risk and profit and state: a. what that sum will be; and b. what percentage of total costs this sum will equate to; and c. what percentage of the gross development value this sum will represent. Chapter Calculate the freehold open market value of a free public house (that is not tied to a brewery) having a bar and catering trade and available for purchase as a going concern. Information obtained on the property, having thoroughly analysed the last five years of business accounts for the premises, is as follows: gross receipts from bar and food sales plus machine income = 225,000 per annum. purchases (of drink and food, etc.) = 85,000 per annum. working expenses (such as heating, lighting, cleaning, employees wages and insurance premiums, but excluding business rates) = 65,000 per annum. current market value of proprietor s fixed assets (furniture, fittings, fixtures and equipment) = 35,000. current value of stock held = 7,000. proprietor s cash on premises and in bank = 4,500. usual share of profits retained by proprietor for similar businesses nearby = 50 per cent excluding interest on capital, which is separately deducted. current business rates payable = 9,000. all risks yield is judged to be 8 per cent. For use in conjunction with Michael Blackledge, Introducing Property Valuation. Routledge: London.