Commercial office building valuation report.

In this exercise you are required to derive a valuation figure for a subject 4 storey building in Parramatta, NSW. The property address is 42 Phillip Street, Parramatta. The date of the valuation is 31 December 2012.

 

All tenancy information and comparable rental and sales information are provided herein. Your task is essentially fourfold.

 

1. Determine a value for the building based on comparable sales information. You will need to first determine a unit rate of rental per annum for the upper three floors and a separate one for the ground floor which is inferior as it includes public foyer and access

 

 

Once this has been done, you will need to strike a capitalisation rate to apply to the subject property and derive the value by capitalisation.

 

2. Undertake a number of PV adjustments to the otherwise found value of the

 

 

3. Reconcile this figure with a ‘check method’ valuation based on a direct comparison, unit of value

 

 

4. Include a factual market commentary for the Parramatta office market, and all references cited in the college style. (Guide 4 – 6 pages)

 

 

 

The subject premises are a good quality, four level, reinforced concrete, commercial office building of some 3,995 square metres in Net Lettable Area. Designed by the architects, the Kann Finch Group it was built by renowned builders of the time, Baulderstone Hornibrook and completed in late 2004.

 

Originally built in slip form and roofed in steel decking over suspended concrete slab, the building has attractive blue tinted and bonded glass, curtain walling with a number of internal mullions extended in clear glass to provide vertical garden features and lesser heat penetration and loss.

The centre of the floor plates house all services including elevators, water, trunk air conditioning and waste water. In addition, there is a fire stair egress adjacent to the central stack that adjoins each floor. The building has no

 

 

dedicated parking on-site, however this is somewhat ameliorated by two large public parking areas within a close walk nearby.

The building levels vary in slightly in size:

 

 

Ground Floor	925.00 sqm.
1st Level	980.00 sqm
2nd Level	985.00 sqm
3rd Level	1,065.00 sqm
Total	3,955.00 sqm

 

 

At Phillip Street, the ground floor has a double glass sliding door entry to a common foyer area leading directly to the lift reception areas for upper floor tenancy access. There is also a single door access to the rear and eastern walls, presumably in line with fire egress requirements and marked as such. The ground floor tenant shares bathroom facilities with the public access and has a dedicated reception hob that fronts the foyer with the rest of the office space petitioned off from the public foyer.

In turn, each successive floor has a dedicated reception hob and waiting room foyer, with offices internally petitioned off. Because of the construction type, large clear span office areas can be provided that a tenant can separate according to design requirements. Internal cabling and communication lines run through the ceilings, dedicated mullions and skirting profiles, while the central trunk air conditioning is fed through branch ductwork in the ceilings and through to successive floors in the rise.

 

 

The general fit out surfaces to each floor are:

 

• Ground floor: Grey marble to entry foyer and to public and lift well and stair foyers; ceramic tiling to major walk areas in the office area and then dark grey, commercial grade carpeting to the remainder of floor areas; standard internal petition walling and well-appointed bathroom areas in grey marble and ceramic tile. There are also plasterboard ceilings with concealed low wattage lighting to main floor areas, and low voltage fluorescent lighting at ceilings adjacent to the curtain walling. In addition, there is fire-safety lighting to lift and stair

 

 

• First floor: Pink ‘egg-shell’ marble to entry foyer and in public lift well and stair foyers; ceramic tiling to major walk areas in the office area and then maroon coloured commercial grade carpeting to the remainder of floor areas; standard internal petition walling and well-appointed bathroom areas in pink marble and ceramic tile. There are also plasterboard ceilings with concealed low wattage lighting to main floor areas,

 

 

and low voltage fluorescent lighting at ceilings adjacent to the curtain walling. In addition, there is fire-safety lighting to lift and stair wells.

 

• Second floor: Pink ‘egg-shell’ marble to entry foyer and in public lift well and stair foyers; ceramic tiling to major walk areas in the office area and then maroon coloured commercial grade carpeting to the remainder of floor areas; standard internal petition walling and well-appointed bathroom areas in pink marble and ceramic tile. There are also plasterboard ceilings with concealed low wattage lighting to main floor areas, and low voltage fluorescent lighting at ceilings adjacent to the curtain walling. In addition, there is fire-safety lighting to lift and stair

 

 

• Third floor: Pink ‘egg-shell’ marble to entry foyer and in public lift well and stair foyers; ceramic tiling to major walk areas in the office area and then maroon coloured commercial grade carpeting to the remainder of floor areas; standard internal petition walling and well-appointed bathroom areas in pink marble and ceramic tile. There are also plasterboard ceilings with concealed low wattage lighting to main floor areas, and low voltage fluorescent lighting at ceilings adjacent to the curtain walling. In addition, there is fire-safety lighting to lift and stair

 

 

Generally, the internal fit out appears in good quality with acceptable finishes and facility and is considered at market standard.

 

Tenancy Details

 

Lessee:	Computer Services Inc.
Tenancy area:	Ground Level, 925 sqm.
Lease term:	4 years
Option:	Nil
Start date:	1st January, 2011
Expiry date:	31st December, 2015
Passing net rent:	$161,875
Outgoings:	Tenant responsible for proportionate outgoings of the building.
$/sqm p.a.:	$275.00
Review date:	1st January, 2013
Review type:	Market
Lessee:	Health Admin Corp.
Tenancy area:	First Level, 980 sqm.
Lease term:	10 years
Option:	Nil
Start date:	1st July, 2007
Expiry date:	31st December, 2017

 

 

Passing net rent:	$294,000
Outgoings:	Tenant responsible for proportionate outgoings of the building.
$/sqm p.a.:	$300.00
Review date:	1st July, 2013
Review type:	Annually to CPI
Lessee:	ING Direct
Tenancy area:	Second Level, 985 sqm.
Lease term:	8 years
Option:	Nil
Start date:	1st July, 2011
Expiry date:	30th June, 2019
Passing net rent:	$246,250
Outgoings:	Tenant responsible for proportionate outgoings of the building.
$/sqm p.a.:	$250.00
Review date:	1st July, 2013
Review type:	Market
Lessee:	Telstra (heads of agreement)
Tenancy area:	Third Level, 1,065 sqm.
Lease term:	10 years
Option:	Nil
Start date:	1st April, 2013
Expiry date:	31st March, 2023
Passing net rent:	$292,875
Outgoings:	Tenant responsible for proportionate outgoings of the building.
$/sqm p.a.:	$275.00
Review date:	1st April, 2015
Review type:	Market

 

Subject property tenancy schedule

 

Tenancy Schedule 42 Phillip Street, Parramatta
Level	Tenant	NLA m2	Current Net Rental $/p.a.	Rate Net $/m2	Term Years	Lease Start	Lease Expiry	Next Review	Review Method
Ground	Computer Services Inc	925.00	161,875	175.00	5	1.1.2011	31.12.2015	1.1.2013	Market
1	Health Admin Corp	980.00	294,000	300.00	10	1.7.2007	31.6.2017	1.7.2013	Annual CPI
2	ING Direct	985.00	246,250	250.00	8	1.7.2011	30.6.2019	1.7.2013	Market
3	Telstra (heads of agmt.)	1065.00	292,875	275.00	10	1.4.2013	31.3.2023	1.4.2015	Market
Totals		3,955.00	$995,000	251.58

 

 

COMPARABLE MARKET EVIDENCE

 

Sales Evidence

 

Address	Sale Price	Date	Size sqm	Net Rent S/pa	Rate Net $/sqm	S/sqm NLA	Yield %	Comment
9 George Street, Parramatta	$24,500,000	Nov 2011	5,476	$1,604,400	$292.99	$4,474	6.55	A 7 storey office building completed 2001. Basement car parking provided.   Fully leased to 5 tenants. One lease expires 7/2012 (15% NLA). No other leases expire until 2017.   Older sale in less firm market. A slightly older and larger building located in more central CBD location. Fully let up and secure longer. Superior in providing parking. In balance, adopt as superior to the subject.
96 Phillip Street, Parramatta	$6,500,000	May 2012	1,815	$432,576	$238.33	$3,581	6.66	A similar 4 level office building with basement parking completed 1984.   Ground floor has restaurant. The rest fully let with staggered lease expiry until 2017.   Recent sale of smaller building but in near location to subject and with parking.   Slightly less surety of tenure. Retail component. In balance, inferior through size and age. Adopt as inferior to the subject.
10 Phillip Street, Parramatta	$16,250,000	Aug 2012	4,632	$930,250	$200.83	$3,508	5.72	A 7 level older office building completed in 1980 offering ground floor retail and 6 levels of office. Limited outside parking on-site.   Sold with 30% vacancy to investor who will take up the space. Hence lower yield.   Adjusted for market, yields 8.50%, and adjusted rental rate of $279.85.   Older, but closer to CBD. Slightly larger. Riskier retail component. In balance adopt as inferior to the subject.
3 Byfield Street, Macquarie Park	$11,600,000	Sep 2012	3,300	$846,000	$256.36	$3,515	7.29	3 level office building, of similar age.   Located in office park near Macquarie University. Handy to train and main road links. Sold fully let up at market rentals.   Secondary position and market. Adopt as inferior to the subject.
2 Raw Square, Strathfield	$13,470,000	Feb 2012	4,440	$980,000	$220.72	$3,034	7.28	7 level office building in western corridor midway between Sydney and Parramatta CBDs.   Single national telco tenant at market rental. Expiry in 2014.   Similar age building. Lesser secondary market and suburb. Very handy to transport and closer to city CBD. In balance an inferior position and some risk of tenure to be renewed. Adopt as inferior.

 

 

50 Miller Street, North Sydney

$50,000,000

Jul 2012

10,435

$3,136,344

$300.56

$4,792

6.27

Modern 10 storey office building with basement parking for 76 cars.   Leased to national bank for 10 years until 2020.   Prime location in better CBD market closer to city and in advance of Parramatta. Very well located to rail and Sydney CBD.   Strong and long tenancy, well superior to subject. Adopt as comparable.

 

 

Leasing Evidence

 

 

Address	Tenant	Area sqm	Rent/sqm/p.a.	Basis	Date	Term Years	Comments
80 George Street, Parramatta	Sinclair Consulting	655	$220.00	Net	Aug 12	5	Older building in need of upgrade.
110 George Street, Parramatta	RTA	1,887	$260.00	Net	May 12	6.5	Rent review of sitting tenant. Comparable building.
96 Phillip Street, Parramatta	Blair Advertising	450	$250.00	Net	Jul 12	4	Good building close to subject.
9 George Street, Parramatta	JMH	820	$360.00	Gross	Apr 12	5	Comparable building. Outgoings estimated at $75/sqm or $61,500. Therefore, Net at $285.00/sqm rate.
10-14 Smith Street, Parramatta	State Property	589	$250.00	Net	Jul 12	2	Rent review, comparable building.
2 Macquarie Street, Parramatta	AMP	1,800	$370.00	Gross	Sep 12	6	Prestige office building. Outgoings estimated at $90/sqm. Therefore, $280.00/sqm rate net.

 

 

A number of PV adjustments must be made to the otherwise found value (adopt 6% as the discount rate):

 

• The Present Value (PV) of the cost of the air conditioning plant repair on 1^st October 2013 estimated at

$320,000 at say 9 months deferred.

• The PV of the CPI adjusted rental of Level 1 as at July 1st, 2013. Annually a rental rise of 2.2% will yield an extra (980sqm x $6.60/sqm p.a.) or $6,468 p.a. Assume monthly in advance (annuity due).
• The PV of the market adjusted rental of Level 2 as at July 1st, 2013. Given it should be paying, say $280 sqm pa, or $274,400 p.a. or $22,866.67 pcm and presently runs at a shortfall of just $250 sqm pa or $246,250 p.a. or $20,520.83 p.c.m. Assume monthly in advance (annuity due).