On 20 Moorgate EC2, London City, UK
For
Henvesco
Manager of Central London Office Unit Trust (CLOUT)
As of
Real Estate Acquisition Team (REAT), London, UK
Project no.
Regarding: 20 Moorgate, London, UK
In order to comply with your request, our team has conducted research on the market data and is through with the value analysis of the property named above. This study is therefore presented to you in a summarized report that narrates the factors surrounding the acquisition of 20 Moorgate EC2.
This study is geared towards estimating the market value of the Estate “As is” on 31st March 2017.the report is therefore written in compliance with the requirements of Uniform Standards of Professional Appraisal Practice (USAPP) (Cosby et al., 1998, p.152-236).
Regarding our analysis on the existing information, the market value of the property in question as of 18th January 2017 is valued at
One thirty four million, seven hundred and sixty seven thousand, one hundred and forty two point five nine dollars ($ 134, 767, 142.59).
HENVESCO
EXECUTIVE SUMMARY
Specifications of the building
Conclusion value £145,350,500
SWOT ANALYSIS
STRENGTHS
First, The environment is ideal, as such, the company can grow competitively together with the other companies in the surrounding region. Secondly, There are also safe and stable tenants, including JP Morgan. Thirdly, it is located at the central point of the town of London where the demands of the offices are high. Finally, the building is of grade A, meaning it is of high specification.
WEAKNESSES
First, The credit rating for the new tenants would have to be strong in order to fit in the banking rates in the building. Secondly, any improvements to be done at the bank would possibly disrupt the tenants. Finally, no room for possible expansion in case a tenant wants to do so.
OPPORTUNITIES
First, there is possibility of rental growth due to presence of Crossrail. Secondly, there is an abundance of the pre-let spaces for the offices. Thirdly, bank improvements can lead to increase in asset value. Finally, there is notable, foreign interest in the London property market.
THREATS
First, the cost of maintenance could be high due to location. Secondly, the lease for the bank of England ends in march 2019, which can cause a big gap in the cash flow if they opt to move away. Finally, uncertainty that lies with BREXIT is likely to cause the customers to quit abruptly.
Photograph and map of the building
The photographs and maps showing the location of the building are as shown in the appendix.
Property data
Property identification
Owner CBLL (real estate investment broker)
Property address 20 Moorgate, London EC2
Property sales history
The property or any part of it has not been on sale, auction or lease within the past five years
Scope of the report
The scope of this appraisal is to give our client the estimated cash equivalent value of the market price of the vacant property that is up for bids, in form of a summarized narrative report format. It is the intention of this appraisal to comply with USAPP. Thus the report presents the data research, reasoning, discussion and its analysis. The discussion depth of the data herein is has been limited to the needs of the client and its intended use as stated above.
This analysis employs the use of direct sales comparison approach to the property under appraisal, since the property is considered to be vacant at the time of the appraisal, thus there is no income generating activity taking place at the appraisal period.
The analysis in this report used both the primary and the secondary sources of data. Secondary data provided the local market estimates, the current market demand situation and the regional demographics of the building. The primary data came from the property, site plans, and surveys and by physical evaluation in order to inspect its current state. Other primary sources employed in this analysis include property owners, buyers, sellers, property managers, the brokers, agents together with other appraisers.
Development of the appraisal and its reporting process
In the preparation of this appraisal, the appraisers conducted an inspection on the site of the property and its neighborhood, gathered up the sales and carried out an inspection on all the comparables. The appraisers also confirmed each of the rental rooms within the building and approved to be in good condition. In addition, the appraisers made use of the available secondary data in order to support the market trends and the expected expenses to be incurred during operation process. All these costs were finally applied to and weighed against the sales value of the property.
Valuation analysis
The study on the property valuation is complete and complies with the above stayed standard requirements and included the comparison analysis and the documentations on the past sales on the property departments in their daily operations in order to determine its worth.
Area description
20 Moorgate building is located in London city. It is one of the prominent buildings in the city of London. It is situated less than 100 meters from the Bank of England, and only 34 meters away from the internationally recognized Moorgate. The building has an excellent transportation network since it is just 200 meters away from the seven underground lines of London and is next to the two cross rail stations of the city, that is, the Liverpool Street and the Moorgate. London is a cosmopolitan city that is divided into sections such as West End, West, London, Mid Town, Dockland, City Fringe, among others (Michael, 2015, p.3-10).
Property description
20 Moorgate was developed in the year 2002 by MEPC to a level of high specification. It provides 154, 854 sq ft or 14,386.5 sq m building that is used for grade A offices, ancillary accommodation and for retails. It is arranged construction wise such that it has a lower ground (or basement), ground floor and seven other upper floors. Its office accommodation has been let to JP Morgan Chase Bank N.A. on a full lease of insuring and repairing. The lease is to expire on 23rd March 2027. The tenant break option is to take effect from 24th march 2019 (Hawkins, 2015, p. 16).
Utilities of the property
The site of the property is currently not served with any public utilities, since the utilities are to be installed by the next entity that is to purchase the property. This notwithstanding, other facilities that surround the subject are served with full utilities. The site is fully and easily accessible from any angle of the city, since it is situated at the very centre of the city.
Dead restrictions
Our assumption is that there are no any dead restrictions that would bar, restrict or unduly limit any developments or adjustments that our client desires to undertake on the said structure in order to achieve the maximum benefit desired from the project. In addition, the appraisers assumes that there exists no hazardous conditions and limitations except for those stated above.
Surrounding land uses
The property is surrounded by the Great Swan Alley on its north side, Copthall to the east side, Telegraph Street to the southern side and Moorgate to its west.
ANALYSIS OF THE PROPERTY
Highest and best use
This is the reasonable and probable use that gives credit to the highest value of the property at the time of its valuation on the appraisal date The Appraisal Institute, 2015, p. 305).
This definition relates to the highest and best use of sites that is either vacant or in use. If the property requires any improvements, the highest and best use becomes different from that property that needs no improvement. A property becomes beneficial if its value exceeds the cost of improvements needed. In the highest and best use analysis, the appraisers endeavored to answer the following questions. Is the intended use on the property possible, permissible and feasible? The first question deals with the property’s physical characteristics. These include its dimensions, size, topography and utilities. Any disparity in either of these factors may make the client to shy away and hinder investment and development. The facts and figures on these factors are as stated above in this report(McAllister & O`Roarty, 1998, p 111).
The second question regards the level of le4gelity of the use that is intended on the property. All the use to be made in this property must be in agreement with the law of the land and the environmental laws as stated above. The third question deals with the area of economic viability of the property. In this case, the appraisers tool a look at the value of the building in order to determine its cost and advice the client accordingly if it is worth going for. As stated above, the building has rental rooms, office and accommodation areas that can generate a substantial amount of income to the client. This highest and best use recommended by the appraisers is commercial entity.
Valuation analysis
This section deals with the reconciliation of facts and drawing of the conclusions as per the investigations of the appraisers. This is meant to provide the client with well-supported analysis of the characteristics of the property in the field of real estate economics. The appraisers thus studied the property from its traditional approaches to value analysis, that is, its cost, sales comparison and the intended income (Baum, 2001, p 58).
Scenario analysis
For a good scenario, the bid value ( highest bid) will be £146,000,000. This is slightly higher than the Conclusion value of the asset (£ 145,350,500). This gives the client a better chance to win the asset. This is driven by the many opportunities in the SWOT analysis that comes with the asset.
For the bad scenario, the bid value is set at £ 144,000,000. This scenario will prevail only if the threats listed in the SWOT analysis persist and outweigh the opportunities. Our NPV value stands at a positive value of £ 94,063,880.00. this gives a higher chance for good scenario.
Thus the suggested bid value will be the average of the lowest and highest bid from both scenarios. This will be £ 145,000,000
Sensitivity analysis
Using the percentage changes in NPV of 5%, the company stands a gain of £94,063,880.00 per annum if the opportunities in the SWOT analysis above prevail. While considering IRR of 8%, the company may lose £11,661,850.00 per annum if the threats prevail.
Conclusion
After a considerable analysis of the existing market trends and the value of the surrounding facilities to the building in question, REAT concludes that the conclusion value of the property as stated above is viable and worth an investment by our client. We thus highly thus highly recommend you to go ahead and possess the property, considering all the factors that we have analyzed in this report.
APPENDIX I
Figure 1: front view of 20 Moorgate EC2.
Figure 2: location of 20 Moorgate EC2 in London city
APPENDIX II
Valuation procedure: the mathematical calculations
This part is demonstrated using the values as shown in the example below.
Assume the rental value charged on a given property is £100,000. There would be a market capitalization rate of 7% applied to the property. This would give a valuation of £ 1,428,000.
If we apply DCF terms, a turn target IRR of 9% will be decided as the viable percentage value. Taking the price of £ 1,428,000 to be a correct value, the growth rate of the rent that will deliver the return is 2.29%.
Bibliography
Baum, A., Crosby, N. & McAllister, P. 2001. Pricing Lease Terms in the retail sector . Reading,
Berkshire, UK.: University of Reading Press.
Cosby, N., Murdoch, S. & Markwell, S. 2000. Monitoring the code of practice for commercial
leases p. 152, 236. London: Deprtment of the environment, transport and the regions.
Hawkins, A. 2015. 20 Moorgate EC2 Bronchure. Journal of JLL , 16.
McAllister, P. & O`Roarty, B. 1998. The legal and valuation implications of break clauses: A
behavioral perspective. de Montfort: de Montfort University press.
Michael, P. 2015. Guide to rents and rent free periods.Ccentral London Q2 2015 , 3-10.
The Appraisal Institute. 2015. The appraisal of real estate 12th Edition, p.305. London:
Appraisal institute.
