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10.0 Valuation issues & rent pricing

As Chartered Surveyors, bank valuers and letting agents Ringley has the experience to present
comparables and establish unit pricing. Our Head of Valuations and Corporate Lettings: Robert Bath
would run this and the analysis is not just rent per square foot x area, but a proper detailed analysis of
aspect, floor level, views, noise, proximity to amenity and a host of other factors.

10.1 Valuation issues
Our view it is unfortunate that ‘Build to Rent’ is not yet a separate planning use class, in becoming so
valuers would be pushed to go beyond the two traditional approaches of:
1. discounted ‘VP’ vacant possession (assuming no restrictive covenants preventing unit sales), or
2. investment ‘rent x gross yield’
To derive the full value there needs to be an element of the ‘trading appraisal approach’, like a hotel.
Maximum asset value dictates transparency around operational costs to establish a detailed
assessment of net income and an understanding of exit yields and trading strategies as an opportunity
to balance portfolio risk but also to hedge inflation.

10.2 Yields: The yield range of ‘build to rent’ as an asset class within the residential sector needs to be
established and in doing so the staffing models need to be understood as does the competence of the
operator and the pull of the brand. The residential sector offers a range of different styles of return
including: ground rents, fragmented housing portfolios, houses in multiple occupation and single ‘buy-
to-let’ units. What ‘build to rent’ offers is management efficiencies and ‘add-on’ income streams
where the opposite of asset break up is the strategy.

10.3 Valuation approach: Our view is that the valuation approach should be the likely returns over a
minimum of 10 years with net income and growth explicit cash flows. The RICS Information paper
“Valuing residential property purpose built for renting blocks” supports an income driven approach
licencing the valuer to consider:
 Rental income – from all elements of the scheme
 Costs – life cycle costing including a sinking fund
 Market rents – provision for a hardcore and top slice income approach where rents are above
market levels
 Future growth rates – of both income and costs
 Void rates – an opportunity to take into account the value a proactive operator and brand pull
brings to ‘build to rent’ as a business
 Net capitalisation yield
 Overall rate of return
As with hotel valuations the lack of transparent management accounts proving net operating income
will be a challenge in the short term, but we may see analysis in room rates incorporating location and
obsolescence emerging in due course. See RICS Valuation Guidance Note produced by the
Residential Investment Property Working Group. ISBN 978 1 78321 076 3
Establishing operating income and higher rents = higher valuations

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