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Author:   Andrew E. Baum (Professor of Land Management, University of Reading; Managing Director, Oxford Property Consultants, Reading) ,  Neil Crosby (Professor of Real Estate, Department of Real Estate & Planning, University of Reading) ,  Steven Devaney
Publisher:   John Wiley and Sons Ltd
Imprint:   Wiley-Blackwell
Edition:   4th edition
Dimensions:   Width: 17.00cm , Height: 1.70cm , Length: 24.40cm
Weight:   0.595kg
ISBN:  

9781118399552

ISBN 10:   1118399552
Pages:   320
Publication Date:   04 February 2021
Audience:   Professional and scholarly ,  Professional & Vocational
Format:   Paperback
Publisher's Status:   Active
Availability:   Manufactured on demand  
We will order this item for you from a manufactured on demand supplier.

Table of Contents

Preface xi 1 Property Investment Appraisal in its Context 1 1.1 What is Appraisal? 1 1.2 The Appraisal Process 4 1.3 What Makes a Good Appraisal? 5 1.3.1 Accuracy, Bias, Smoothing, and Lagging of Valuations 6 1.3.2 Client Influence on Valuations 11 1.4 Conventional and Discounted-Cash-Flow Approaches to Appraisal 12 2 Principles of Investment Analysis 15 2.1 Introduction 15 2.2 Types of Investments 16 2.2.1 Cash Deposits 16 2.2.2 Fixed-Interest Securities 17 2.2.3 Index-Linked Securities 19 2.2.4 Ordinary Shares (Equities) 20 2.2.5 Property 22 2.2.6 Summary of Investment Types 24 2.3 Qualities of Investments 25 2.3.1 Income and Capital Growth 27 2.3.2 Operating Expenses 28 2.3.3 Liquidity, Marketability, and Transfer Costs 28 2.3.4 Real Options 29 2.3.5 Leverage 30 2.3.6 Tax Efficiency 31 2.4 Sources of Risk 31 2.4.1 Business and Financial Risk 32 2.4.2 Nominal and Real Risk 33 2.4.3 Systematic and Specific Risk 34 2.4.3.1 Systematic Risks 35 2.4.3.2 Specific Risks 35 2.4.3.3 International Investment Risks 37 2.4.4 Diversifying Risk 37 2.5 Comparing Investments: NPV and IRR 41 2.6 Initial Yield Analysis and Construction 46 2.7 Summary 48 3 The DCF Appraisal Model 51 3.1 The Cash Flow Model 51 3.2 The Inputs 51 3.2.1 The Holding Period 53 3.2.2 The Lease and Lease Events 54 3.2.3 Depreciation, Refurbishment and Redevelopment 55 3.2.4 Forecasting Rental Growth 57 3.2.5 The Resale Price 58 3.2.6 Exit Capitalisation Rate 58 3.2.7 Expenses 59 3.2.8 Void (Vacancy) Allowances 60 3.2.9 Transaction Costs 60 3.2.10 Taxes 61 3.2.11 Debt Finance 61 3.3 The Discount Rate 62 3.3.1 The Risk-Free Rate 63 3.3.2 The Risk Premium 64 3.4 Examples 66 3.5 Summary 82 4 The Evolution of Freehold Market Valuation Models 83 4.1 Introduction 83 4.2 The Evolution of Conventional Techniques 84 4.2.1 The Changing Perception of Investors 84 4.2.2 Historical Application of the Basic Valuation Model 88 4.3 Rationale of the Pre-1960 Appraisal Approach 90 4.4 The Post-1960 Conventional Market Valuation Model 94 4.4.1 The Fully Let Freehold 95 4.4.2 The Reversionary Freehold 95 4.4.3 Over-Rented Properties 102 4.5 Conclusions 107 5 Contemporary Freehold Market Valuations 109 5.1 Introduction 109 5.2 Analysing Transactions 111 5.2.1 Implied Rental Growth Rate Analysis 111 5.2.2 Calculation of the Implied Rental Growth Rate 111 5.2.3 Implied Target Rate Analysis 113 5.3 Full Explicit and Short-cut DCF Valuation Models 114 5.3.1 Introduction 114 5.3.2 An Explicit Cash-Flow Model Including Short Cut DCF 114 5.3.3 DCF by Formula 117 5.4 Alternatives to DCF 118 5.4.1 Introduction 118 5.4.2 Real Value 119 5.4.3 Arbitrage Model 124 5.5 Reversionary Freehold Valuations 127 5.5.1 Analysis of Transactions 127 5.5.2 Short Cut DCF 128 5.5.3 Real Value 128 5.5.4 Arbitrage 129 5.6 Over-rented Contemporary Model Valuations 130 5.6.1 Analysis of Transactions 130 5.6.2 Short Cut DCF 131 5.6.3 Real Value 131 5.6.4 Arbitrage 132 5.7 Summary 133 6 Freehold Market Valuations – Applications 135 6.1 Introduction 135 6.2 Analysis of Transactions 136 6.3 Rack Rented or Vacant Property Investments 139 6.3.1 Conventional Model 139 6.3.2 DCF by Formula 140 6.3.3 Explicit DCF (Assuming a Nine-Year Holding Period) 140 6.3.4 Arbitrage/Real Value 141 6.4 Two-Stage Reversionary Freeholds 142 6.4.1 Basic Two-Stage Reversionary Freeholds 142 6.4.2 Long Reversions 143 6.4.3 Over-rented Properties 146 6.5 More Complex Reversionary Freeholds 153 6.5.1 Lease Events and the Valuation of Multi-let Property 153 6.5.2 Alternative Review Forms: Indexation and Fixed Increases 162 6.5.3 Summary 166 6.6 Comparing Conventional and Contemporary Techniques 167 6.6.1 Defending Conventional Techniques 167 6.6.2 Target-Rate Choice 167 6.6.3 Fully Let Freeholds: Contemporary Versus Conventional Valuations 168 6.6.4 Reversionary Freeholds: Contemporary Versus Conventional Valuations 169 6.7 Taxation and Market Valuation 178 6.8 Conclusions 182 7 Leasehold Valuations 185 7.1 Introduction 185 7.2 The Evolution of Conventional Leasehold Valuations 185 7.3 Contemporary Leasehold Valuations 194 7.3.1 Fixed Leasehold Profit Rents 195 7.3.2 Geared Leasehold Profit Rents Reviewable Rent Received, Fixed Rent Paid 196 7.3.3 Synchronised Reviews in Head- and Sub-leases 200 7.3.4 Reversionary Leaseholds Reviewable Rent Received, Fixed Rent Paid 200 7.3.5 Reviewable Rent Received, Unsynchronised Reviewable Rent Paid 202 7.3.6 Over-rented Leaseholds 204 7.4 Conventional Versus Contemporary Techniques 206 7.5 The Limitations of the Contemporary Models for Leaseholds 209 7.5.1 Analysis and Valuation Using Leasehold Comparables 209 7.5.2 Analysis and Valuation Using Freehold Comparables 212 7.6 Taxation and the Market Valuation of Leaseholds 215 7.7 Conclusions 216 8 Measurement and Pricing of Risk in Appraisals 217 8.1 Introduction 217 8.2 Nature and Sources of Risk 218 8.3 Measuring Risk 220 8.3.1 Risk-Adjusted Discount Rate 222 8.3.2 Sensitivity Analysis 224 8.3.3 Scenarios 228 8.3.4 Simulations 229 8.4 Risk Pricing 232 8.4.1 Assessing the Risk Premium 233 8.4.2 Certainty-Equivalent Cash Flows 234 8.4.3 The Sliced-Income Approach 235 8.5 Summary 238 9 Development Appraisal 241 9.1 Introduction 241 9.2 Valuation Methods 242 9.2.1 Basic Residual Method 242 9.2.2 Discounted Cash Flow Residual Method 243 9.3 Developer’s Profit 250 9.4 Changes in Costs and Values and Phasing of Developments 253 9.5 Finance 253 9.6 Conclusion 254 10 Bank Lending Appraisals 259 10.1 Introduction 259 10.2 The Bank Lending Valuation Problem 260 10.3 Market Value 261 10.4 Mortgage Lending Value 261 10.5 Basel III Definition of Long-term Value 263 10.6 Investment Value 264 10.7 Illustration of the Three Established Approaches 264 10.7.1 Market Value (Equivalent Yield 6.5%) 265 10.7.2 Mortgage Lending Value 266 10.7.3 Investment Value 267 10.8 Performance of the Three Valuation Bases over the Last Two Property Market Downturns in the UK 268 10.9 Summary and Conclusions 271 11 Conclusions 273 Bibliography 277 Index 291

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Author Information

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.

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