Summary: Lecture Slides

Read the summary and the most important questions on Lecture Slides

• 1 Valuation of Retail Properties

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• What are the Retail Value Drivers?

  Retail value drivers should be distinguished between Spatial and Non-spatial factors. The following drivers determines the value of retail:
  

  • Macro-environment: Position of shopping area (Spatial: market area/ catchment area)
  • Meso-environment: Location within area and retail mix (Spatial: Site, Non spatial: Retail mix)
  • Micro-environment: Characteristics per unit (Spatial: Building type, Non spatial: Retail Image)

  
  
  Rent prices in small neighborhood centers is largely explained by market, site, building, and image factors.

• What are ITZA square meters?

  In Terms of Zone A. Visitors of shop spend more time in front of the store than in the back. Therefore an correction with ITZA is made. After each obstacle an certain percentage is taken from the rent level

• What is the Legal Rental Review Value, and why is it used?

  Legal Rental Review Value is an government implementation to protect tenants from high rental increases. LRRV is determined every 5 years prior to the valuation date and is than set to an market value. The rent can only increase after the contract period with the LRRV.

• 2 Residual Valuation and Cost Method

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• What are the five valuation methods which can be used to value an object?

  Main Methods
  

  1. Sales Comparison method (Direct Comparison, Hedonic Valuation Models) - High marketability, creates Market Value
  2. Income Capitalization (DC, DCF) - High marketability, creates Market Value
  3. Cost Method - Low marketability, creates Replacement Value

  
  
  Two additional methods
  

  1. Profit Method - Specialized property, creates Business Value
  2. Residual Method (Mixed method)

• When is the Cost Method best applicable?

  The Cost approach works best for markets that are in equilibrium. It is applied for properties that very rarely trade in open market (no comparable transactions available: prisons, libraries, oil refineries)
  The method does not provide a market value, but a replacement value.
  
  Cost Method is used as a last resort, when no market evidence is available.

• What is the formula of the Cost Method?

  Value = Replacement costs - Accrued depreciation on the improvements + Land Value

• What are the limitations of the cost method?

  • Market value differs from cost of production
  • Inaccurate
  • Lack of data
  • Depreciation is a very subjective variable
  • Risk is not included

• How can one determine the Accrued Depreciation?

  Accrued Depreciation = EA / EL x Reproduction Cost new
  
  Where:
  EA = Effective age
  EL = Economic life

• How are economic conditions reflected in the estimate of economic depreciation?

  The effect of disequilibrium on properties can be measured by extracting a market condition factor (MCF) from a sample of recent sales (if available). It is a price to cost ratio.
  
  MCF = Selling price of the building / Cost new less 'other' depreciation

• What is an Expected Use Analysis, and what are the criteria?

  The property's value is a function of its expected use, which function is the best for that particular location. To determine the expected use there are a few important criteria:
  

  1. Legally permissible (public: zoning, overimprovement)
  2. Physically possible (possible earthquakes, ability to ground to support the building, cost of foundation)
  3. Financially feasible
  4. Maximally productive (Highest and best use premise, expected use, most probable use)