Property Investment Appraisal, Fourth Edition

ISBN-13: 9781118399552 / Angielski / Miękka / 2021 / 320 str.

Steven Devaney

Spis treści

Preface xi1 Property Investment Appraisal in its Context 11.1 What is Appraisal? 11.2 The Appraisal Process 41.3 What Makes a Good Appraisal? 51.3.1 Accuracy, Bias, Smoothing, and Lagging of Valuations 61.3.2 Client Influence on Valuations 111.4 Conventional and Discounted-Cash-Flow Approaches to Appraisal 122 Principles of Investment Analysis 152.1 Introduction 152.2 Types of Investments 162.2.1 Cash Deposits 162.2.2 Fixed-Interest Securities 172.2.3 Index-Linked Securities 192.2.4 Ordinary Shares (Equities) 202.2.5 Property 222.2.6 Summary of Investment Types 242.3 Qualities of Investments 252.3.1 Income and Capital Growth 272.3.2 Operating Expenses 282.3.3 Liquidity, Marketability, and Transfer Costs 282.3.4 Real Options 292.3.5 Leverage 302.3.6 Tax Efficiency 312.4 Sources of Risk 312.4.1 Business and Financial Risk 322.4.2 Nominal and Real Risk 332.4.3 Systematic and Specific Risk 342.4.3.1 Systematic Risks 352.4.3.2 Specific Risks 352.4.3.3 International Investment Risks 372.4.4 Diversifying Risk 372.5 Comparing Investments: NPV and IRR 412.6 Initial Yield Analysis and Construction 462.7 Summary 483 The DCF Appraisal Model 513.1 The Cash Flow Model 513.2 The Inputs 513.2.1 The Holding Period 533.2.2 The Lease and Lease Events 543.2.3 Depreciation, Refurbishment and Redevelopment 553.2.4 Forecasting Rental Growth 573.2.5 The Resale Price 583.2.6 Exit Capitalisation Rate 583.2.7 Expenses 593.2.8 Void (Vacancy) Allowances 603.2.9 Transaction Costs 603.2.10 Taxes 613.2.11 Debt Finance 613.3 The Discount Rate 623.3.1 The Risk-Free Rate 633.3.2 The Risk Premium 643.4 Examples 663.5 Summary 824 The Evolution of Freehold Market Valuation Models 834.1 Introduction 834.2 The Evolution of Conventional Techniques 844.2.1 The Changing Perception of Investors 844.2.2 Historical Application of the Basic Valuation Model 884.3 Rationale of the Pre-1960 Appraisal Approach 904.4 The Post-1960 Conventional Market Valuation Model 944.4.1 The Fully Let Freehold 954.4.2 The Reversionary Freehold 954.4.3 Over-Rented Properties 1024.5 Conclusions 1075 Contemporary Freehold Market Valuations 1095.1 Introduction 1095.2 Analysing Transactions 1115.2.1 Implied Rental Growth Rate Analysis 1115.2.2 Calculation of the Implied Rental Growth Rate 1115.2.3 Implied Target Rate Analysis 1135.3 Full Explicit and Short-cut DCF Valuation Models 1145.3.1 Introduction 1145.3.2 An Explicit Cash-Flow Model Including Short Cut DCF 1145.3.3 DCF by Formula 1175.4 Alternatives to DCF 1185.4.1 Introduction 1185.4.2 Real Value 1195.4.3 Arbitrage Model 1245.5 Reversionary Freehold Valuations 1275.5.1 Analysis of Transactions 1275.5.2 Short Cut DCF 1285.5.3 Real Value 1285.5.4 Arbitrage 1295.6 Over-rented Contemporary Model Valuations 1305.6.1 Analysis of Transactions 1305.6.2 Short Cut DCF 1315.6.3 Real Value 1315.6.4 Arbitrage 1325.7 Summary 1336 Freehold Market Valuations - Applications 1356.1 Introduction 1356.2 Analysis of Transactions 1366.3 Rack Rented or Vacant Property Investments 1396.3.1 Conventional Model 1396.3.2 DCF by Formula 1406.3.3 Explicit DCF (Assuming a Nine-Year Holding Period) 1406.3.4 Arbitrage/Real Value 1416.4 Two-Stage Reversionary Freeholds 1426.4.1 Basic Two-Stage Reversionary Freeholds 1426.4.2 Long Reversions 1436.4.3 Over-rented Properties 1466.5 More Complex Reversionary Freeholds 1536.5.1 Lease Events and the Valuation of Multi-let Property 1536.5.2 Alternative Review Forms: Indexation and Fixed Increases 1626.5.3 Summary 1666.6 Comparing Conventional and Contemporary Techniques 1676.6.1 Defending Conventional Techniques 1676.6.2 Target-Rate Choice 1676.6.3 Fully Let Freeholds: Contemporary Versus Conventional Valuations 1686.6.4 Reversionary Freeholds: Contemporary Versus Conventional Valuations 1696.7 Taxation and Market Valuation 1786.8 Conclusions 1827 Leasehold Valuations 1857.1 Introduction 1857.2 The Evolution of Conventional Leasehold Valuations 1857.3 Contemporary Leasehold Valuations 1947.3.1 Fixed Leasehold Profit Rents 1957.3.2 Geared Leasehold Profit Rents Reviewable Rent Received, Fixed Rent Paid 1967.3.3 Synchronised Reviews in Head- and Sub-leases 2007.3.4 Reversionary Leaseholds Reviewable Rent Received, Fixed Rent Paid 2007.3.5 Reviewable Rent Received, Unsynchronised Reviewable Rent Paid 2027.3.6 Over-rented Leaseholds 2047.4 Conventional Versus Contemporary Techniques 2067.5 The Limitations of the Contemporary Models for Leaseholds 2097.5.1 Analysis and Valuation Using Leasehold Comparables 2097.5.2 Analysis and Valuation Using Freehold Comparables 2127.6 Taxation and the Market Valuation of Leaseholds 2157.7 Conclusions 2168 Measurement and Pricing of Risk in Appraisals 2178.1 Introduction 2178.2 Nature and Sources of Risk 2188.3 Measuring Risk 2208.3.1 Risk-Adjusted Discount Rate 2228.3.2 Sensitivity Analysis 2248.3.3 Scenarios 2288.3.4 Simulations 2298.4 Risk Pricing 2328.4.1 Assessing the Risk Premium 2338.4.2 Certainty-Equivalent Cash Flows 2348.4.3 The Sliced-Income Approach 2358.5 Summary 2389 Development Appraisal 2419.1 Introduction 2419.2 Valuation Methods 2429.2.1 Basic Residual Method 2429.2.2 Discounted Cash Flow Residual Method 2439.3 Developer's Profit 2509.4 Changes in Costs and Values and Phasing of Developments 2539.5 Finance 2539.6 Conclusion 25410 Bank Lending Appraisals 25910.1 Introduction 25910.2 The Bank Lending Valuation Problem 26010.3 Market Value 26110.4 Mortgage Lending Value 26110.5 Basel III Definition of Long-term Value 26310.6 Investment Value 26410.7 Illustration of the Three Established Approaches 26410.7.1 Market Value (Equivalent Yield 6.5%) 26510.7.2 Mortgage Lending Value 26610.7.3 Investment Value 26710.8 Performance of the Three Valuation Bases over the Last Two Property Market Downturns in the UK 26810.9 Summary and Conclusions 27111 Conclusions 273Bibliography 277Index 291

O autorze

ANDREW E. BAUM is Professor of Practice at the Saïd Business School, University of Oxford, where he leads the Future of Real Estate Initiative. He is also Senior Research Fellow at Green Templeton College and Emeritus Professor at the University of Reading. He is Chairman of Newcore Capital Management and advisor to several property organisations. He has held senior positions with Nuveen, CBRE Global Investors, Grosvenor and other investors and fund managers.NEIL CROSBY is Professor of Real Estate in the Department of Real Estate and Planning at the University of Reading. He is a Fellow of the Academy of Social Sciences, has been awarded life membership of the Investment Property Forum and a fellowship of the Society of Property Researchers, and is a member of the RICS Valuation Standards Board. He originally qualified and practised as a Chartered Valuation Surveyor in the UK before holding academic positions at Nottingham Trent and Oxford Brookes Universities.STEVEN DEVANEY is an Associate Professor at the Henley Business School, University of Reading, where he teaches both investment appraisal and market valuation methods. He was previously a Lecturer in Real Estate at the University of Aberdeen and worked as an analyst at Investment Property Databank.