BPLN0010 Real Estate Appraisal
Bartlett School of Planning, UCL
Module Coordinator: Dr. Tommaso Gabrieli
1. LEARNING AIMS AND OUTCOMES
Aims and Objectives. The project aims to provide the student with the opportunity
(1) Appreciate the process by which commercial real estate assets are appraised.
(2) Develop an understanding of the key attributes of real estate assets.
(3) Improve spreadsheet and financial modeling skills.
(4) Develop an understanding of the key inputs into real estate valuation models.
(5) Enhance an understanding of the value-adding opportunities for real estate
(6) Improve report writing skills.
(1) Understand the nature of real estate investment decisions.
(2) Apply theories of real estate valuation to real world decisions.
(3) Demonstrate an ability to solve a complex professional valuation problem.
(4) Develop analytic, IT and report-writing transferable skills.
2. THE SIMULATED SCENARIO
NB: You may not need to use all of this information for your assignment. Some of it is here
to add to your knowledge and understanding of real estate investments and markets.
You have joined the acquisitions team of a real estate investment fund. Your role as
a junior analyst is to assist your team in the evaluation of potential real estate invest ment opportunities. Your boss is the real estate fund manager for a large open-ended
office fund based in the UK Central London Office Unit Trust (CLOUT) that is run
by Henvesco, a large mixed-portfolio investment fund. CLOUT is one of a number of
real estate funds where Henvesco is the operator and investment manager. You are
part of the acquisitions team of CLOUT. With varying lot sizes, CLOUT owns 25 of fice assets spread around the West End, Midtown and The City with a total portfolio
Gross Asset Value of £ 1,250,000,000. The Net Asset Value of the fund is £ 700,500,000
with a gearing ratio of approximately 45%. The fund is marketed as “core plus” and
their investment strategy is to target a fund gearing ratio of 45% – 55%.
CLOUT has recently “screened” the introduction of a new asset on sale (brochure
on Moodle) by CBLL (a hypothetical) real estate investment broker (think of CBRE
or JLL). The CLOUT Investment Screening Committee has decided that they would
like to “run the numbers” on this potential investment with a view to possibly make
a bid. The asset is expected to be sold in a “best bids” tendering process at the
beginning of January and it is expected that the transaction will be completed on
CLOUT has recently agreed a borrowing facility with Met-life (a major US finan cial services and life insurance group who has entered the UKs real estate lending
market). They have agreed to an amortizing loan of 50% of asset acquisition price at
5% annual interest rate fixed for five years with constant interest repayments quar terly in arrears. Additional fees include a 3% (of loan principal) arrangement fee
payable upon acquisition and a 1.5% (of loan principal) payable upon redemption.
CLOUT has a target rate of return for un-levered assets of 6.5% and 8% for levered
The fund manager would like you to provide an estimate of the Investment Value
of the proposed investment assuming an acquisition date of April 1st. However, you
must also recommend a bid figure for the asset.
The fund manager requires you to write a 2,500 words professional report and
provide the related Excel model (that you must upload to Moodle).
The professional report should include:
(1) an estimate of the Investment Value of the proposed investment assuming an
acquisition date of April 1st,
(2) an appropriate sensitivity analysis,
(3) a recommended bid figure for the asset.
This will rely on the preliminary analysis of:
(1) a qualitative evaluation of the asset as an investment (e.g. SWOT-type analy sis1
(2) estimations and justifications of your key assumptions to be used in the mod eling of the asset’s financial cash flows,
(3) an estimate of the Market Value of the asset by using a simple Net Initial Yield
approach with appropriate comparables,
which the fund manager requires you to describe in a group presentation in late
In particular, in terms of cash flow assumptions, your fund manager is concerned
about exit yield, rental growth, market rent, depreciation, void periods and costs,
capital expenditures, management and transaction costs and other variables that you
think may be relevant.
In the Excel model, you should display annual and quarterly financial models of
the investment on both un-levered and levered bases. Your Excel model should pro vide all the necessary information and justification for the Market Value, Investment
Value and recommended bid figures as well as for the sensitivity analysis.
You should provide a professional report which is “pitched” at the appropriate
level given the readers existing knowledge.
In this case, you should assume that the reader knows more than you! For in stance, a common mistake is to over-explain basic variables e.g. depreciation. The
fund manager is interested in your rationale for the figures selected and you should
always explicitly state the value of every variable that you use. It is also worth not ing that certain assumptions are fairly standard e.g. acquisition fees, sale fees, rent
review fees and do not really require detailed justification since there is not much
disagreement on these variables. On the contrary, you may well get a range of views
on rental growth, market rent, exit yield etc. and you need to explain in detail the
underlying assumptions behind those numbers.
Because of the professional focus of the report, rather different from an academic
essay, it is usually not appropriate to extensively cite textbooks and/or academic
papers in this type of report. Having said that, it is very appropriate and required
SWOT stands for strengths, weaknesses, opportunities and threats.
to cite the sources behind the market figures and the specific assumptions that you
use (e.g. market reports or academic papers). The report should include an executive
summary. The executive summary should consist of 6-8 single sentence bullet points
that address the purpose of the report, the issues addressed, the key-findings, as well
as conclusions and recommendations.
As part of the quality assurance process, the report should also include the com pleted Report Quality Assurance inside the front cover (available on Moodle). If
you can truthfully confirm that your report conforms with the formatting checklist
below, then you should be fine in terms of structure and formatting. Bear in mind
that this check-list is largely focussed on the presentation and communication of the
report rather than the content and substance. Typically the latter are far more im portant! However it is important to get into good habits in terms of writing and
presenting your work. Please note that this check-list is meant to help you to avoid
some common errors. However, it is by no means comprehensive. You should look
for guidance on and examples of report-writing. There is no single approach to struc turing and formatting a report. It varies with purpose, topic, audience etc. However,
some other tips, requirements and examples will be offered on Moodle and during
In a professional environment, it is important that a report has no grammatical
or spelling errors. The credibility of, or confidence in, any written advice or analysis
that you provide to clients or colleagues will be undermined if you make basic errors
in your written expression. It is therefore very important to check your grammar
and spelling before submitting. This involves a process of editing, correcting, proof
reading and improving.
Even if this is a professional rather than academic report, it is absolutely impor tant to bear in mind that you should not present the work of others as your own. DO
NOT ATTEMPT TO CUT AND PASTE OR RESTATE EXTRACTS FROM OTHER
DOCUMENTS AND INCLUDE THEM IN YOUR REPORTS WITHOUT APPRO PRIATE REFERENCING AND ATTRIBUTION. THIS IS ONE FORM OF PLA GIARISM AND IS REGARDED AS SERIOUS ACADEMIC MISCONDUCT. It is
also important to bear in mind that when quoting figures e.g. rents, yields, forecasts
etc, it is best to quote the source behind them. This enables the reader to evalu ate their reliability and provenance. You should always provide a bibliography of
e-sources and other sources cited in the document.
STUDENTS OFTEN COLLABORATE ON PROJECTS. FOR EXCEL MODEL ING PROJECTS, A COMMON PROBLEM IS THAT STUDENTS SUBMIT THE
OUTPUTS OF A FINANCIAL MODEL THAT THEY HAVE JOINTLY CREATED.
AS A RESULT, THEIR WORK IS IDENTICAL. AGAIN WHERE THE PROJECT
IS INDIVIDUAL RATHER THAN GROUP WORK, THIS IS ANOTHER FORM
OF PLAGIARISM AND IS REGARDED AS SERIOUS ACADEMIC MISCON DUCT. IT NEEDS TO BE YOUR OWN INDIVIDUAL WORK. Whilst collabora tion is encouraged, you need to be careful about joint production of a single piece of
work that it submitted for two or more students. It is expected that each financial
model will be unique in terms of assumptions, formatting, layout etc.
5. ASSESSMENT CRITERIA
The main emphasis of the project is on your ability to justify assumptions regard ing the determinants of future revenues streams (rental growth, depreciation, man agement costs, exit yields, void costs etc.) and to provide a clear and well-executed
financial model of the future cash flows, estimating Internal Rates of Return and
showing the sensitivity of the quantitative results to the assumptions made. In par ticular, it will asses:
(1) Ability to collect and analyse appropriate data to solve real-world valuation
(2) Ability to communicate key findings into a clear, incisive business report;
(3) Ability to evaluate the investment qualities of real estate assets;
(4) Evidence of research, reading and data gathering relevant to the problem;
(5) Good presentation skills. In particular, you should be able to provide clear
and easy to understand valuations and cash flows for the asset.
The individual course-work is due for submission via Moodle in early January.
The mark and feedback on your submitted course-work will be returned to you
within 20 working days (i.e. 4 calendar weeks) via Moodle.
Formative feedback: Guidance and support is available to students before the course work is due, especially during the last two weeks of term.
7. ASSESSMENT WEIGHTING
The group presentation counts for 20% of the final mark in the module. The indi vidual project counts for 80% of the final mark in the module. There is no prescribed
partial weighting between written report and Excel work as those are fundamentally
integrated parts of the project. Failure to submit any of the two components (written
report and Excel work) implies failure in the module.
8. WORD LIMIT
The Word Limit for the written report is 2,500 words.
The word limit includes all text (including the text of the title, headings, captions,
tables, footnotes, and anything that you include as an appendix) contained within
the work, except the reference list (= the final bibliography). Please note that text in
tables must not be used as a way of circumventing the stated word limit. Tables or
boxes containing text should be inserted in the document in a text-based format, not
as a picture or as a text box. The word count should be calculated in MS Word. The
word count must be stated on either the title page of your course-work or otherwise
at the top of the first page of your course-work. In line with the current BSP reg ulations, the following penalties will be applied to course-work which exceeds the
• For work that exceeds the upper word limit by less than 10%, there will be no
• For work that exceeds the upper word limit by between 10% and 20%, the
grade will be reduced by 10 percentage points, but the penalised mark will
not be reduced below the pass mark (50%), assuming the work merits a pass.
• For work that exceeds the upper word limit by 20% or more, a mark of zero
will be recorded.
• In the case of course-work that is submitted late and is also over length, then
the greater of the two penalties shall apply.
Please note that the Moodle Turnitin submission system allows markers to check
that the word count stated by students is accurate, although Turnitin includes ALL
words, including any reference list / bibliography and allowance needs to be made
There is no single approach to structuring and formatting a report. Usually, good
reports should cover the following sections:
(1) Executive Summary
(2) Introduction or Terms of Reference or Scope of the Report
(3) Could be “Background and Context” “Key Definitions” or something else
(4) Should cover “Assumptions”, “Methodology”, “Analysis”
(5) Should cover “Results”, “Key Points”, “Conclusions”, “Recommendations”