Оглавление
Andrew E. Baum. Property Investment Appraisal
Table of Contents
List of Tables
List of Illustrations
Guide
Pages
Property Investment Appraisal
Preface
1 Property Investment Appraisal in its Context. 1.1 What is Appraisal?
1.2 The Appraisal Process
1.3 What Makes a Good Appraisal?
1.3.1 Accuracy, Bias, Smoothing, and Lagging of Valuations
1.3.2 Client Influence on Valuations
1.4 Conventional and Discounted-Cash-Flow Approaches to Appraisal
2 Principles of Investment Analysis. 2.1 Introduction
2.2 Types of Investments
2.2.1 Cash Deposits
2.2.2 Fixed-Interest Securities
2.2.3 Index-Linked Securities
2.2.4 Ordinary Shares (Equities)
2.2.5 Property
2.2.6 Summary of Investment Types
2.3 Qualities of Investments
2.3.1 Income and Capital Growth
2.3.2 Operating Expenses
2.3.3 Liquidity, Marketability, and Transfer Costs
2.3.4 Real Options
2.3.5 Leverage
2.3.6 Tax Efficiency
2.4 Sources of Risk
2.4.1 Business and Financial Risk
2.4.2 Nominal and Real Risk
2.4.3 Systematic and Specific Risk
2.4.3.1 Systematic Risks
2.4.3.2 Specific Risks
2.4.3.3 International Investment Risks
2.4.4 Diversifying Risk
2.5 Comparing Investments: NPV and IRR
2.6 Initial Yield Analysis and Construction
2.7 Summary
3 The DCF Appraisal Model. 3.1 The Cash Flow Model
3.2 The Inputs
3.2.1 The Holding Period
3.2.2 The Lease and Lease Events
3.2.3 Depreciation, Refurbishment and Redevelopment
3.2.4 Forecasting Rental Growth
3.2.5 The Resale Price
3.2.6 Exit Capitalisation Rate
3.2.7 Expenses
3.2.8 Void (Vacancy) Allowances
3.2.9 Transaction Costs
3.2.10 Taxes
3.2.11 Debt Finance
3.3 The Discount Rate
3.3.1 The Risk-Free Rate
3.3.2 The Risk Premium
3.4 Examples. Example 3.1The Basic Discounted-Cash-Flow Model
Example 3.2Refurbishment
Example 3.3Freehold Multi-let Property
Example 3.4Leasehold Property
Example 3.5Applying Debt
3.5 Summary
Notes
4 The Evolution of Freehold Market Valuation Models. 4.1 Introduction
4.2 The Evolution of Conventional Techniques. 4.2.1 The Changing Perception of Investors
4.2.2 Historical Application of the Basic Valuation Model
Example 4.1Rack-Rented Freehold
Example 4.2 Reversionary Freehold
4.3 Rationale of the Pre-1960 Appraisal Approach
Example 4.3Fully Let Freehold
Example 4.4 Reversionary Freehold
4.4 The Post-1960 Conventional Market Valuation Model
4.4.1 The Fully Let Freehold
4.4.2 The Reversionary Freehold
Example 4.5 Reversionary Freehold
Analysis of Transactions
Term and Reversion
Analysis
Notes
Criticisms
Layer
Analysis
Notes
Criticisms
Equivalent Yield
Analysis
Notes
Criticisms
Conclusions
4.4.3 Over-Rented Properties
Example 4.6 Over-Rented Freehold
Initial yield approach
Core and top slice approach
4.5 Conclusions
5 Contemporary Freehold Market Valuations. 5.1 Introduction
5.2 Analysing Transactions. 5.2.1 Implied Rental Growth Rate Analysis
5.2.2 Calculation of the Implied Rental Growth Rate
5.2.3 Implied Target Rate Analysis
5.3 Full Explicit and Short-cut DCF Valuation Models. 5.3.1 Introduction
5.3.2 An Explicit Cash-Flow Model Including Short Cut DCF
5.3.3 DCF by Formula
5.4 Alternatives to DCF. 5.4.1 Introduction
5.4.2 Real Value
5.4.3 Arbitrage Model
5.5 Reversionary Freehold Valuations
5.5.1 Analysis of Transactions
5.5.2 Short Cut DCF
5.5.3 Real Value
5.5.4 Arbitrage
5.6 Over-rented Contemporary Model Valuations
5.6.1 Analysis of Transactions
5.6.2 Short Cut DCF
5.6.3 Real Value
5.6.4 Arbitrage
5.7 Summary
6 Freehold Market Valuations – Applications. 6.1 Introduction
6.2 Analysis of Transactions
Equivalent yield analysis
Short cut DCF valuation analysis
Conventional Core and Top Slice
Yield Analysis Within Short-Cut DCF
Short-cut DCF valuation analysis
6.3 Rack Rented or Vacant Property Investments
Conventional Model
DCF by Formula
Explicit DCF (Assuming a Nine-Year Holding Period)
Arbitrage/Real Value
6.4 Two-Stage Reversionary Freeholds. 6.4.1 Basic Two-Stage Reversionary Freeholds
6.4.2 Long Reversions
Conventional valuation
Short cut DCF valuation analysis
Arbitrage/real value
6.4.3 Over-rented Properties
Average Tenant. Conventional Valuation
Initial Yield
Core and Top Slice
Term and Reversion
Growth-Explicit Shortcut DCF
Arbitrage/Real Value
Arbitrage/real value
Strong Tenant
Core and Top Slice
Arbitrage/Real Value
Growth-Explicit Shortcut DCF
6.5 More Complex Reversionary Freeholds
6.5.1 Lease Events and the Valuation of Multi-let Property
Growth Explicit DCF
Real Value/Arbitrage
Valuation of multi-let property
Conventional Equivalent Yield Valuation of Unit 1
Short Cut DCF Valuation of Unit 1
6.5.2 Alternative Review Forms: Indexation and Fixed Increases
Conventional Valuation
Contemporary Approaches. Explicit DCF. Indexed Lease
Stepped Lease
Arbitrage/Real Value
Indexed Lease
Stepped Lease
6.5.3 Summary
6.6 Comparing Conventional and Contemporary Techniques. 6.6.1 Defending Conventional Techniques
6.6.2 Target-Rate Choice
6.6.3 Fully Let Freeholds: Contemporary Versus Conventional Valuations
Conventional Valuation
Contemporary Valuation Using an Explicit-DCF Format
6.6.4 Reversionary Freeholds: Contemporary Versus Conventional Valuations
The Availability and Analysis of Transaction Evidence
Conventional valuation
Explicit DCF valuation
Applying Comparable Evidence
6.7 Taxation and Market Valuation
Contemporary approach
6.8 Conclusions
7 Leasehold Valuations. 7.1 Introduction
7.2 The Evolution of Conventional Leasehold Valuations
Example 7.1Leasehold
Example 7.2Conventional Leasehold Valuation
Dual rate, tax-adjusted
Criticisms
Dual rate, unadjusted for tax
Criticisms
Single rate
7.3 Contemporary Leasehold Valuations
7.3.1 Fixed Leasehold Profit Rents
a. Explicit DCF
b. Short-cut DCF, Real Value/Arbitrage
7.3.2 Geared Leasehold Profit Rents Reviewable Rent Received, Fixed Rent Paid
a. Explicit DCF
b. Real Value/Arbitrage
7.3.3 Synchronised Reviews in Head- and Sub-leases
a. Explicit DCF
b. Real Value
7.3.4 Reversionary Leaseholds Reviewable Rent Received, Fixed Rent Paid
a. Explicit DCF
b. Real Value
7.3.5 Reviewable Rent Received, Unsynchronised Reviewable Rent Paid
a. Explicit discounted cash flow
b. Real Value
7.3.6 Over-rented Leaseholds
a. Explicit DCF
b. Real Value
7.4 Conventional Versus Contemporary Techniques
7.5 The Limitations of the Contemporary Models for Leaseholds
7.5.1 Analysis and Valuation Using Leasehold Comparables
7.5.2 Analysis and Valuation Using Freehold Comparables
7.6 Taxation and the Market Valuation of Leaseholds
Net-of-tax IRFY approach
7.7 Conclusions
8 Measurement and Pricing of Risk in Appraisals. 8.1 Introduction
8.2 Nature and Sources of Risk
8.3 Measuring Risk
Example 8.1 Two Competing Property Investments
Investment A
Investment B
8.3.1 Risk-Adjusted Discount Rate
8.3.2 Sensitivity Analysis
8.3.3 Scenarios
8.3.4 Simulations
8.4 Risk Pricing
8.4.1 Assessing the Risk Premium
8.4.2 Certainty-Equivalent Cash Flows
8.4.3 The Sliced-Income Approach
8.5 Summary
Notes
9 Development Appraisal. 9.1 Introduction
9.2 Valuation Methods
9.2.1 Basic Residual Method
9.2.2 Discounted Cash Flow Residual Method
Example 9.1Development Appraisal (Wyatt 2013)
9.3 Developer's Profit
9.4 Changes in Costs and Values and Phasing of Developments
9.5 Finance
9.6 Conclusion
Notes
10 Bank Lending Appraisals. 10.1 Introduction
10.2 The Bank Lending Valuation Problem
10.3 Market Value
10.4 Mortgage Lending Value
10.5 Basel III Definition of Long-term Value
10.6 Investment Value
10.7 Illustration of the Three Established Approaches
10.7.1 Market Value (Equivalent Yield 6.5%)
10.7.2 Mortgage Lending Value
10.7.3 Investment Value
10.8 Performance of the Three Valuation Bases over the Last Two Property Market Downturns in the UK
10.9 Summary and Conclusions
11 Conclusions
Bibliography
Index
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