Real estate evaluation

Task 1: Case StudyASSIGNMENT BRIEF TASK 1: 20% of Total Module MarkEach part carries equal marks. You should take the valuation date for thisassignment as February 3, 2017.Billy Button (Landlord) owns a mixed use commercial property in Bournemouth. Itcomprises 2 shops on the ground floor and 2 upper floors of offices.Lease and Property InformationShop AShop A is let to a rug selling company trading as Alibaba Rugs Ltd for a term of 10years from 3 February 2014 at an initial passing rent of £40,000 pa subject to a 5yearly upwards only review. The lease is on effective FRI terms with the tenantliability for a proportionate share of repairing, maintaining and decorating the externaland common parts, together with insurance provision. The rent review clause hasthe usual tenant’s assumptions and disregards with the rent to be determined on neteffective terms.The following measurements are available (assuming that all welfare facilities areseparate to the retail trading space given below):Net frontage: 6.75 metresShop depth: 42.95 metresShop BShop B is let to a local pharmacy trading as Pills R Us Ltd for a term of 15 years from3 August 2015 at an initial passing rent of £48,700 pa subject to a 5 yearly upwardsonly review and a tenant’s break at the end of years 5 and 10. The lease is oneffective FRI terms with the tenant liability for a proportionate share of repairing,maintaining, and decorating the external and common parts, together with insuranceprovision. The rent review clause has the usual tenant’s assumptions anddisregards with the rent to be determined on net effective terms.The following measurements are available (assuming that all welfare facilities areseparate to the retail trading space given below):Net frontage: 7.21 metresShop depth: 42.95 metresComparisonYou may, for this assignment, rely on the single comparison detailed below as beingindicative of market rental levels as the valuation date. Retail premises in very closeproximity have been let from 3 February 2017 for a 10 year term on FRI termssubject to an upwards only review at the fifth anniversary of the term. The rent hasbeen agreed at £ 45,500 pa subject to 9 months’ initial rent free.The following measurements are available (assuming that all welfare facilities areseparate to the retail trading space given below):Net frontage: 5.43 metresShop depth: 26.50 metresInvestment evidence in the area shows that the all risks (market) yield for rack rentretail premises selling in the area is 7.25% (net basis) for average tenant covenantrisk.There are two questions to answer:A. Billy Button has been approached by a national convenience store outlet (‘AtYour Convenience’) to take both premises on a single tenancy (with attendantopening up works to trade as a single outlet). He has approached AlibabaRugs Ltd and Pills R Us Ltd and even though they have only been in the unitsfor relatively short terms, both are struggling to pay their rents and havesignalled that if they are given a sensible premium, they will vacate withoutany dilapidations liability.Evidence suggests that with an improved covenant the market yield is likely tostrengthen by 50 bps. However the prospective tenant has requested that theLandlord pays for all the opening up works with a new lease for 25 yearsbeing agreed with 12 months’ rent free at market rent (the comparison notedabove should be used to determine this). Rent reviews will be 5-yearly basedon CPI uplifts.Stating all reasonable assumptions, calculate the premiums that each of thetenants could expect to receive if the Landlord can make the surrender andre-grant work. You should explain what your results mean.B. Using the above information and stating any reasonable assumptions, shouldthe Landlord be approached by At Your Convenience where it wishes tocontract on the same terms but leaves open the amount of rent free whichcould be offered (in place of the 12 months noted above) by the Landlord,calculate and explain how much rent free the Landlord could reasonably offerwith the deal still being affordable. Both existing tenants have demanded apremium each of £35,000 to vacate.MAXIMUM MODULE MARK: 20 MARKS (equal to Parts A and B)Suggested word limit: circa 1,000 (excluding references)Assessment CriteriaAssessment of your submission will be based on the weighted criteria as givenbelow. These relate to your module learning outcomes.Assessment Criteria Mark (%)CASE STUDY (40% of this Assignment):20 Module MarksCommunication: Presentation & Structure (beginning to reach aprofessional standard). Accurate Spelling; Good grammar andsentence and paragraph construction; evidence of editing and proofreading; Writing style appropriate to task (report; essay; etc.); workwell structured; understanding of both legal and academic referencing.5%Research: evidence of wider reading round the subject; list ofreferences quite substantial; use of books and professional literatureand beginning to use academic literature through search engines;developing appreciation of the quality of literature. Appropriate use ofrecognised academic and legal referencing systems.5%Surrender calculations: Understanding of the concept of surrenderand re-grant calculations, appropriate analysis of evidence, fullstatement of valuation assumptions, and carrying out of relevantcalculations to determine tenant compensation. Demonstration of alevel of knowledge and understanding to present a fully argued andsupported outcome based on the material circumstances given.30%