Discover an insightful examination of the property investment appraisal process from leaders in the industry This book explains t...
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Discover an insightful examination of the property investment appraisal process from leaders in the industry
This book explains the process of property investment appraisal: the process of estimating both the most likely selling price (market value) and the worth of property investments to individuals or groups of investors (investment value).
Valuations are important. They are used as a surrogate for transactions in the measurement of investment performance and they influence investors and other market operators when transacting property. Valuations need to be trusted by their clients and valuers need to produce rational and objective solutions. Appraisals of worth are even more important, as they help to determine the prices that should be paid for assets, even in times of crisis, and they can indicate market under- or over-pricing.
In a style that makes the theory as well as the practice of valuation accessible to students and practitioners, the authors provide a valuable critique of conventional valuation methods and argue for the adoption of more contemporary cash-flow methods. They explain how such valuation models are constructed and give useful examples throughout. They also show how these contemporary cash-flow methods connect market valuations with rational appraisals.
The UK property investment market has been through periods of both boom and bust since the first edition of this text was produced in 1988. As a result, the book includes examples generated by vastly different market states. Complex reversions, over-rented properties and leaseholds are all fully examined by the authors.
This Fourth Edition includes new material throughout, including brand new chapters on development appraisals and bank lending valuations, heavily revised sections on discounted cash flow models with extended examples, and on the measurement and analysis of risk at an individual property asset level. The heart of the book remains the critical examination of market valuation models, which no other book addresses in such detail. Autorentext 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. Inhalt Preface xi 1 Property Investment Appraisal in its Context1 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 Analysis15 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 18.104.22.168 Systematic Risks 35 22.214.171.124 Specific Risks 35 126.96.36.199 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 Model51 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 Models83 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 Valuations109 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 Applications135 6.1 Introduction 135 ...