am
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Post by am on May 3, 2017 10:53:02 GMT
The VR tells me that the current lease ends at end (28th) of February 2018. But the bridging loan ends on the 5th November 2017 (over 3 months earlier). MoneyThing ? Update: It's mentioned further down the VR that the property is currently unoccupied, so it seems likely that the tenant would be willing to surrender the leasehold early.
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11025
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Post by 11025 on May 3, 2017 13:47:38 GMT
<link identifying asset removed>
Why was the property being marketed for £500K , if the true valuation is £650K ? , or was it actually purchased for £455K ? something doesn't make sense
Hopefully I am overlooking something obvious here
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ozboy
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Mine's a Large One! (Snigger, snigger .......)
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Post by ozboy on May 3, 2017 14:20:03 GMT
Land Registry says # 36 sold for £400,000 on 2003-01-04 as a Detached Leasehold.
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11025
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Post by 11025 on May 3, 2017 14:32:34 GMT
Land Registry says # 36 sold for £400,000 on 2003-01-04 as a Detached Leasehold. Going by that £650K for the pair with outline planning seems pretty realistic , still like to know where the marketing for £500K came from .....
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am
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Post by am on May 3, 2017 14:42:39 GMT
The Land Registry reports a sale for £400,000 dated 4th January 2003 (for #36; I'm assuming that is the same property as 34-36). Previously sold for £162,500 in 1998.
That's a big jump between 1998 and 2003, and much larger than the rise in house price indices over those years. Commercial property is more volatile, but even so. Perhaps the first sale was before the two houses were put together.
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am
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Post by am on May 3, 2017 14:50:12 GMT
I don't see any comparables for the market rent (as opposed to the multiplier applied to give the investment value).
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metoo
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Post by metoo on May 3, 2017 14:56:34 GMT
The security valuation has been arrived at by taking a GDV for the flats assuming full planning, then subtracting a construction cost. The existing office coincidentally has the same valuation but it's based on the current above-market rent of £60,000 pa, whereas the market rent is considered to be £50,000 pa. We aren't told who pays an above-market rent for a building not in use. Perhaps a connected party? Does the borrower own the site now, or will it be bought using the loan?
The initial loan plus estimated / fixed construction costs of 1.2m conveniently comes to 69.5% of the valuer's GDV estimate. The valuer says "When factoring in the site value of £650,000 it is on the basis that the Gross Development Costs are fixed at £1,200,000." Perhaps that is usual when working out a site value?
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registerme
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Post by registerme on May 3, 2017 15:15:17 GMT
"This loan is being used to assist with the acquisition of the site. Currently there is outline planning to demolish the current building & construct a 14 apartment development. Within the six month loan term, the borrower will look to obtain full planning".
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am
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Post by am on May 3, 2017 15:20:06 GMT
The security valuation has been arrived at by taking a GDV for the flats assuming full planning, then subtracting a construction cost. The existing office coincidentally has the same valuation but it's based on the current above-market rent of £6000, whereas the market rent is considered to be £5000. We aren't told who pays an above-market rent for a building not in use. Perhaps a connected party? Does the borrower own the site now, or will it be bought using the loan? I'd (mis)read the investment value as being based on the market rent. (At the current rent of £60,000, if a longer lease was in place, I'd estimate the value at greater than £650,000.) The VR says the market rent of £50,000 corresponds to a yield of 7.96%. That corresponds to a capital of £628,000. One would normally expect a valuer to report the yield against the valuation (there's no particular reason to expect the valuer to know what the price being paid is). As this isn't that I was lead to suspect a purchase price of £628,000. But having fed a few more numbers through a calculator I see that the current rent against valuation gives a yield of 9.6%, and the market rent against valuation a yield of 7.69%, leading me to suspect that the 7.96% represents a transposition error ( MoneyThing ?) (and that the investment value is really based on the market rent not the current rent in spite of what the VR says). Given that as a commercial (office) let the property requires refurbishment, and that the valuers are aware of higher (and well as lower) yields in the local market, a conservative valuation would drop the investment value to say £575,000-£600,000, which leaves us with £50,000-£75,000 of hope value in the valuation.
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11025
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Post by 11025 on May 3, 2017 15:22:22 GMT
The security valuation has been arrived at by taking a GDV for the flats assuming full planning, then subtracting a construction cost. The existing office coincidentally has the same valuation but it's based on the current above-market rent of £60000, whereas the market rent is considered to be £50000. We aren't told who pays an above-market rent for a building not in use. Perhaps a connected party? Does the borrower own the site now, or will it be bought using the loan? It says the £650K is based on a valuation with only outline planning
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am
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Post by am on May 3, 2017 15:31:04 GMT
The security valuation has been arrived at by taking a GDV for the flats assuming full planning, then subtracting a construction cost. The existing office coincidentally has the same valuation but it's based on the current above-market rent of £60000, whereas the market rent is considered to be £50000. We aren't told who pays an above-market rent for a building not in use. Perhaps a connected party? Does the borrower own the site now, or will it be bought using the loan? It says the £650K is based on a valuation with only outline planning The calculation isn't presented, but the £650k should be GDV less construction and sales costs less profits less a discount for planning risk. In theory, when full planning permission is granted it should be worth more. Given that the projected profit margin is over 25% there's certainly scope for increasing the valuation if and when full planning is obtained.
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am
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Post by am on May 3, 2017 15:42:48 GMT
Regardless of questions about the valuation (I really think that a deduction for refurbishment costs should have been included in the investment value) this is flying off the shelves (£318,000 gone). However I thought that there were sufficient questions that I reduced my participation by 60%.) With full planning, as a development finance loan, I expect it to be more appealing, so if it continues at MT I will probably add more money on refinance.
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11025
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Post by 11025 on May 3, 2017 15:59:55 GMT
Regardless of questions about the valuation (I really think that a deduction for refurbishment costs should have been included in the investment value) this is flying off the shelves (£318,000 gone). However I thought that there were sufficient questions that I reduced my participation by 60%.) With full planning, as a development finance loan, I expect it to be more appealing, so if it continues at MT I will probably add more money on refinance. I totally concur
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am
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Post by am on May 3, 2017 16:26:18 GMT
The calculation isn't presented, but the £650k should be GDV less construction and sales costs less profits less a discount for planning risk. In theory, when full planning permission is granted it should be worth more. Given that the projected profit margin is over 25% there's certainly scope for increasing the valuation if and when full planning is obtained. There is a calculation you can do. (I think!) The GDV is £2,380,000; gross profit is stated at 25% = £595,000; the 'fixed fee' build cost is £1,200,000. Take the latter two from the first figure and you get £585,000 as a form of residual value. A £455k loan against £585k residual value is an effective LTV of 78% Happy to have those figures blown away - I'm kinda making this up as I go along! Points to note: the fixed fee of £1.2M appears to only cover build costs (but does include demolition). Additional costs may be professional fees for planning approval / marketing / sales / legals. Then there will be the finance costs at whatever % rate on the £1.65M being borrowed. The VR states a gross profit of 25% but I think it'll be tighter than that. All depends on what the actual purchase price of the site is / was - and that we may never know.... The gross profit percentage should calculated (IMHO) from cost, not GDV. That puts an extra £125,000 back on the valuation. Take away other costs and planning risk discount and £650,000 doesn't look too far out. We still have to worry about uncertainties in the GDV.
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am
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Post by am on May 3, 2017 17:06:37 GMT
The gross profit percentage should calculated (IMHO) from cost, not GDV. That puts an extra £125,000 back on the valuation. Take away other costs and planning risk discount and £650,000 doesn't look too far out. We still have to worry about uncertainties in the GDV. I was running on the basis of another VR, as follows: On that one, the profit is a straight 15% of the GDV, and that's what I sought to apply above. Difficult to say the valuation of £650k is wrong per se - it's just an opinion, after all - but it is frustrating that full working out isn't shown given that the figure of £650k seemingly has a direct relationship with the build costs as implied by the statement: " When factoring in the site value of £650,000 it is on the basis that the gross development costs are fixed at £1,200,000". To me, that implies some working backwards has been undertaken. 15% of GDV is 17.5% cost (plus contingency). The above has a fairly large contingency, which presumably can be neglected in the case of a fixed price construction contract (until the contractor runs out of money). But yes working backwards has almost certainly taken place, and yes I agree that valuers ought to show their workings.
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