Property Investment Appraisal

by Baum, Andrew E.; Crosby, Neil

• ISBN13: 9781405135559
• ISBN10: 1405135557
• Edition: 3rd
• Format: Paperback
• Copyright: 2007-11-12
• Publisher: Wiley-Blackwell

Summary

When first published in 1988 this book was acclaimed by a number of commentators as being the first critical work about UK property appraisal, previous work was at a basic level concentrating solely on communicating applications in practice so that students and practitioners were able to fulfil the valuation function. Critiques of this practice had previously been confined to academic papers in academic and professional journals. In 1995, the authors published a second edition which developed some of the applications in the text to more complex lease structures and added material on falling income flows. During the previous five years, the property crash of 1990 had caused valuers to re-appraise traditional valuation approaches and some of the developmental work in the previous edition was applied to the changed cash flow expectations caused by the inflexible lease conditions. Since 1995, property investment appraisal has developed and a new edition is required to take note of these developments. The issue of flexible leasing has become one of the major Government policy initiatives within direct property investment and the pricing of the lease contract needs to be addressed. In addition, there has been a steady research output concerning the valuation process rather than methods and this whole area, including the behavioural aspects, should be considered within any modern appraisal text. Some other specific aspects which impact on appraisal are advances in our understanding of risk and the definition and measurement of depreciation.and these also need to be incorporated into a new edition. Despite the second edition being nearly 10 years old, more recent texts appear to have retained a descriptive approach and therefore PIA remains the major critical work outlining the limitations of UK property investment appraisal and valuation whilst still providing readers with enough practical application to help them to undertake appraisals.

Author Biography

Andrew Baum , Professor Land Management, University of Reading; Neil Crosby, also a Professor of Land Management at Reading. Both are well known in authors and researchers in this field - as well as being experienced consultants.

Table of Contents

Preface	p. vii
Introduction	p. 1
Property Investment Appraisal in its Context	p. 3
What is appraisal?	p. 3
What makes a good appraisal?	p. 5
Conventional and discounted-cash-flow approaches to appraisal	p. 6
Property investment appraisal and the capital markets	p. 8
The appraisal process	p. 13
Principles of Investment Analysis	p. 20
Investment	p. 20
Investment types	p. 21
Qualities of investments	p. 32
Initial-yield analysis and construction	p. 56
Comparing investment opportunities: NPV and IRR	p. 59
The DCF Appraisal Model	p. 63
The cash-flow model	p. 63
The cash flow	p. 67
The discount rate	p. 75
Examples	p. 78
Market Valuation Models	p. 89
The Theory and Practice of Conventional Appraisal Techniques	p. 91
Introduction	p. 91
The evolution of conventional techniques	p. 92
Rationale of the pre-1960 appraisal approach	p. 98
The current conventional market valuation model	p. 104
Conclusions	p. 122
Contemporary Growth-Explicit Market Valuation Models	p. 124
Introduction	p. 124
Analysing transactions	p. 125
Short-cut DCF valuation models	p. 129
Real value models	p. 134
Arbitrage model	p. 144
Summary	p. 147
Contemporary Freehold Market Valuations	p. 148
Introduction	p. 148
Rack-rented freeholds	p. 149
Two-stage reversionary freeholds	p. 154
More complex reversionary freeholds	p. 165
Comparing conventional and contemporary techniques	p. 172
Taxation and market valuation	p. 189
Conclusions	p. 196
Contemporary Leasehold Market Valuations	p. 198
Introduction	p. 198
Fixed leasehold profit rents	p. 200
Geared leasehold profit rents	p. 201
Synchronised reviews in head- and sub-leases	p. 204
Reversionary leaseholds	p. 205
Reviewable rent received, unsynchronised reviewable rent paid	p. 206
Over-rented leaseholds	p. 209
Conventional versus contemporary techniques	p. 210
The limitations of the contemporary models for leaseholds	p. 214
Taxation and the market valuation of leaseholds	p. 220
Conclusions	p. 221
Investment Value and Worth	p. 223
Property Investment Value: the Assessment of Worth	p. 225
Introduction: a model for analysis	p. 225
Risk/return analysis	p. 226
Portfolio risk	p. 260
Summary	p. 261
Appendix: pricing the options inherent in leased commercial property - a UK case study	p. 263
Value and Price: a Case Study	p. 277
Introduction	p. 277
The investment	p. 277
Market valuation	p. 282
Investment appraisal	p. 283
The international perspective	p. 288
Investment performance	p. 291
2006: on the market again	p. 292
Summary	p. 294
Conclusions	p. 296
Bibliography	p. 300
Index	p. 311
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