About the Authors xi
Foreword xiii
by Andrew Baum
Foreword xv
by Vincent Vinit
Preface xvii
Chapter 1 Introduction to Property Valuation 1
Determining the Valuation Requirement 1
The Subject of the Valuation 1
Purpose of the Valuation 2
Value to Be Estimated 2
Valuation Date 2
Definitions of Value 3
Market Value 3
Investment Value 5
Valuation Associations, Codes and Standards 6
Notes 7
Chapter 2 Economic Characteristics and Elements of Risks of Properties 9
Characteristics of Property Investments 10
Building and Land 10
Use of Space and Investment Asset 13
Owners and Users 13
Business Perspective 14
Location 15
Categories of Property Investments 16
Development Projects 16
Income-Producing Properties 17
Trading Operations 17
Skills in Asset and Investment Management 18
Economic Classification of Properties 19
Property Classification Criteria 19
Macro Categories of Properties 24
A Simple Definition of Risk 28
Common Risk Elements in Real Estate Investment 29
Capital Market 29
Liquidity 30
Financial Structure 30
Regulatory 31
Location 31
Intended Use and Type of Properties 32
Development Projects 33
Authorisation 33
Environmental 33
Construction-Related 34
Market 34
Income-Producing Properties 35
Physical and Technical Features 35
Management and Market 36
Rental and Contractual Situation 36
Notes 37
Chapter 3 Market Analysis 41
Economic Analysis 41
Analysis of the Property Market 41
Comparative Data and Valuation Method 43
Characteristics of the Comparative Factors and Information Sources 43
Notes 45
Chapter 4 A New Simple Classification of Valuation Methods 47
Choice of Valuation Method 49
Depreciated Cost Approach Methods 53
Introduction 53
Description 53
Use, Advantages, and Limitations of the Depreciated Cost Approach 56
Notes 56
Chapter 5 Sales Comparison Approach Methods 59
Approach and Application Criteria 59
Direct Comparison Approach 60
Hedonic Pricing Model 63
Notes 65
Chapter 6 Income Capitalisation Comparison Approach Methods 67
Approach and Application Criteria 67
Direct Capitalisation Approach 69
The Direct Capitalisation Approach Calculation Algorithm 70
Profit and Loss Account of an Income-Producing Property 71
Use, Advantages, and Limitations of the Direct Capitalisation Approach 78
Application of the Direct Capitalisation Approach 78
Discounted Cash Flow Approach 81
Choosing the Time Horizon 82
Estimating the Cash Flows 83
Estimating the Terminal Value 83
Discounting the Cash Flows and Calculating the Asset Value 85
Use, Advantages, and Limitations of the Discounted Cash Flow Approach 88
Residual Value Methods 90
Introduction 90
Single Period Residual Value Approach 90
Multiple Periods Residual Value Approach 91
Notes 94
Chapter 7 Property Return Rates 97
Measuring the Return on a Property Investment 97
Rates and Capital Market 101
Cap Rate 103
Definition and Description of the Cap Rate 103
Going-In and Going-Out Cap Rate 104
Discount Rate 107
Definition and Description of the Discount Rate 107
Consistency Between Discount Rate and Cash Flow 108
The Components of the Discount Rate 110
How to Estimate Property Return Rates 113
Market Extraction 114
Determining the Discount Rate from the Cap Rate 117
Build-Up Approach 119
Analysing the Opinions of Market Players on the Return Expected 122
Notes 122
Chapter 8 Structure of the Valuation Report 127
Executive Summary 128
Preamble 128
Description of the Property 128
Market Analysis 133
Valuation 134
Conclusions 134
Appendices 135
Notes 135
Chapter 9 Office Property Appraisal 137
Description of the Property 137
Choice of Valuation Method 139
Market Analysis 139
Valuation 140
Choosing the Time Horizon 140
Estimating the Cash Flows 141
Determining the Terminal Value 145
Determining the Discount Rate 146
Calculating the Market Value of the Property 147
Notes 151
Chapter 10 High Street Retail Unit Appraisal 153
Description of the Property 153
Choice of Valuation Method 154
Market Analysis 157
Estimating the ERV 157
Estimating the Cap Rate 160
Estimating Vacancy and Leasing Time 161
Estimating Refurbishment Costs 161
Valuation 161
Notes 163
Chapter 11 Hotel Appraisal 165
Description of the Property 165
Choice of Valuation Method 167
Market Analysis 168
Macroeconomic Climate 168
Supply and Demand Analysis 169
Forecast of Average Rate and Occupancy 173
Projection of Income and Expenses 178
Valuation 185
Notes 187
Chapter 12 Development Project Appraisal 189
Description of the Property 189
Choice of Valuation Method 190
Market Analysis 191
Valuation of the Development Project 192
Choosing the Time Horizon 192
Estimating the Cash Flows 194
Determining the Discount Rate 195
Calculating the Market Value of the Development Project 197
Notes 197
Glossary 199
Bibliography 205
Index 209
