Estimating Property Values in Times of Significant Uncertainty
In times of Covid-19 pandemic, property market or fair values are harder than ever to estimate. Valuers desperately trying to find enough ‘evidence’, but property is an illiquid asset by definition and as such, transactional evidence disappears during periods of market unrest.
So, what can property valuers do in times of market uncertainty?
The International Valuation Standards Council (IVSC), whose standards have been adopted by the ‘RICS Red Book’, issued a letter in March 2020 with the title ‘Dealing with valuation uncertainty at times of market unrest’. Their advice was mainly based on three points:
If the valuer can’t carry out an inspection due to government restrictions, clearly state it and agree this with the client.
If the valuer considers that it is not possible to provide a valuation on a restricted basis, the instruction should be declined.
Valuers should not apply pre-crisis criteria to their valuations as this approach is based on the potentially erroneous assumption that values will return to their pre-crisis levels and there is no way of predicting that this assumption in fact correct.
The life of a valuer is pretty tough at the best of times, even with the benefit of good comparable evidence. This is because valuers are carrying out transaction analysis in the most imperfect market that exists. This is why valuation is often described as both an art and a science.
Before a valuer starts to worry about the valuation methodology and analysis, the basis of value needs to be defined, this represents the fundamental measurement assumptions of the valuation. For the purposes of this article, I will focus on the most common basis of value, market value.
In order to halt the rapid spread of Covid -19 and to try and ease the pressure on the strained NHS, we, as a country have to stay at home, to work, rest and play.
Cambridge Finance have launched online courses to continue giving you the skills and knowledge you need to better deliver your job; we were committed to this ethos before and now more than ever. We truly believe that we must keep our industry going, so we can all come out of this phase better than we were ever before.
We are however mindful that virtual learning comes with its challenges: we will not be able to replace the face-to-face rapport, it will take longer to explain the complex subject of real estate financial modelling in simple terms, and bad jokes will not make as much sense as they would in the classroom. We also understand that with schools and nurseries closures, you may be facing extra childcare responsibilities on top of trying to keep things going at work and learning new skills.
With all that in mind, the online solution will entail more CPD hours and will comprise of shorter sessions of 4 hours each with regular short breaks in order to maintain focus.
Going Dutch does not always have particularly positive connotations; but Going Dutch in green investments is a whole other matter. The Dutch do it well, and the results are increasingly being recognised as beneficial.
How do the Dutch know how to do this? I learned a joke about developers when I arrived in Holland: ‘
What is the first thing a developer does? He makes the land’. Ha ha.
The Dutch grow up to the national tune, Living with Water, not taking it for granted that our land is permanent and knowing that we are together collectively responsible for its stability. There is also the inbuilt advantage of being brought up on bicycles: as soon as you are old enough to sit up straight at a few months old, you can expect to be riding along on a seat out front on your parent’s bike. Being a very small baby projected into town traffic makes you brave in life. It is hardly surprising that these people grow up to be creative engineers and responsible investors, intuitively understanding environmental protection and not being easily fazed by life. Some of the most innovative, sustainable and thought-provoking investments and construction projects stem from Dutch activities which have served Dutch investment returns well. It is no accident that GRESB, the leading sustainability performance measurement, has its roots in Holland working with that other seat of innovation, California.
If you are looking to get into Real Estate financier, here you will find a few metrics commonly used by loan underwriters.
As discussed in part 01, covenants are financial metrics used by lenders to determine how risky lending capital might be for a given project. We learnt about LTV/LTGDV/LTC, and now we are going to find out a bit more about two other important ratios: DSCR and ICR.
DSCR (Debt Service Coverage Ratio)
In short, DSCR is the ratio between cash available and cash required for debt servicing. In other words, it is the ratio of the right amount of cash to repay the debt.
Commercial lenders use the DSCR to assess how large a commercial loan can be supported by the cash flow generated by the asset.
If you are looking to get into Real Estate financier or just being more familiarised with its vocabulary, here you will find a few metrics commonly used by loan underwriters.
The daily life of a developer is not easy. They need lenders to help them to finance their developments, but lenders do not lend money without a thorough due diligence on the investment, starting with the covenants. Covenants imposes a limit on the amount of money a financier can lend to a development. In this article and the next, we are going to run through the most common covenant metrics used by loan underwriters.
From a developer perspective, sometimes the UK planning system can be quite intricate and vague. One of the reasons is due to its uncertainty at the initial stage.
Before starting a site negotiation with the landowner, the developer needs to calculate the residual land value. However, to appraise the prospective development, the developer needs to know precisely the maximum number of unities, max stories height, and all other building metrics. That is only possible if the developer officially consults the local planning authority (pre-application), which is going to charge for the information (ranging from a few dozens to thousands of pounds).
That is a dilemma: the developer needs to decide whether it is worth to pay a pre-application fee for each and every new deal to verify the residual land value.
In essence, the COUNTIFS function is used to count the number of cells that meet one or multiple criteria, given a specific range of the array.
You may have noticed that COUNTIFS has an “S” in the end, which differs from its cousin COUNTIF, which is programmed to count the number of cells meeting only one condition and a single range, whereas COUNTIFS accepts several criteria.
The formula is comprised of ( criteria range 1, criteria 1 ), this is the required argument. In case you want to add new criteria, just add after the first two arguments
E.g. ( criteria range 1, criteria 1, criteria range 2, criteria 2).
You could add as many criteria as you want. The criteria range accounts for the array you want to count (highlighting them), and the criteria are the condition to be tested against those values.