MMP212 Property Valuation And Investment Analysis Assignment

Brief

This is a group assignment completed within the group of maximum three students, please read the instructions carefully. This is the second part of a two-stage assignment process. This assignment builds on the information gathered for assignment one (market and property report) and consists of (a) a basic valuation using the direct capitalization method, (b) the Discounted Cash Flow (DCF) valuation, and (c) investment feasibility and financing strategy analysis. The property to be valued and analyzed is GSO Dandenong, 165-169 Thomas Street, Dandenong, VIC 3175. The process behind undertaking of these valuation and analysis approaches for this assignment will be discussed during the lectures and seminars and reference should also be made to the required readings and in particular the prescribed text.

Task

Following the submission of your first assignment that investigated and provided information about the subject property and the market, your client has now decided to invest in this property under consideration and would like you to advise them on the current market value of the property and the feasibility of this investment. This investment can be financed up to 80% by debt. The investment term is 10 years. Your task is to prepare a valuation and investment analysis report for the property GSO Dandenong, 165-169 Thomas Street, Dandenong, VIC 3175. The research data required to undertake this analysis will be sourced from (a) your first assignment (b) from materials provided on CloudDeakin and (c) other related materials you found online.

Suggested sections and headings within this part of the report

1. The following headings are provided for guidance only. Changes, additions and deletions from this list may be necessary as you see fit. Within these categories you should also provide a definition of the method you are applying to demonstrate your understanding.1. Rental rationale– Here you need to analyze the market rents provided as benchmark, excluding any aberrations, and compare these to existing rents with the aim of determining and validating rents for use in the analysis process.
2. Direct Capitalization Method – In this section market value of the property should be determined using direct capitalization method. In order to do that you should analyze the sales and rental comparability and provide justification of data used etc. (the section of “Sales evidence”) and include discussion and application of outgoings. Clear conclusions on the adopted rental levels are needed as well as clear discussion of sales to explain your valuation approach. You must provide detailed step-by-step annotated calculations explaining all assumptions, capitalization rate derivation and final valuation.
3. Discounted Cash Flow (DCF) Valuation – In this section market value of the property should be determined using DCF method. You must provide all the information to explain all assumptions and interim findings, showing how cash flow estimations and discount rates have been arrived at etc. DCF model has numerous assumptions throughout which must all be discussed and justified. The DCF must be calculated over a TEN (10) YEAR PERIOD and on a properly working excel spreadsheet.
4. Reconciliation of valuation – Here you must discuss the merits and weaknesses of each method (DCM and DCF) you have used in this valuation and reconcile the valuation outcome that you believe is most appropriate with pertinent justifications.
5. Investment and financing analysis-The feasibility of this investment should be tested by criteria related to DCF method such as IRR, NPV and Payback period etc. You also need to analyze and discuss the other issues related to the profitability of the investment, especially the financing choice. DCF model has numerous assumptions throughout which must all be discussed and justified.
6. Final conclusion – Here you must provide your final comments for the property value, valuation limitations, investment feasibility, and financing recommendations for your client.

Please note: The spreadsheet must show all headings, formulas (inserted in relevant cells) and be able to “test” by the marker by inserting new values to determine correct performance. You will need to individually discuss variables, projections and assumptions in the report, not just make small annotations in the spreadsheet.

Learning outcomes

This assignment has been designed to develop core professional knowledge and skills as part of your PRE course at Deakin. By completing this assignment responsibly you will be able to:

1. Critically analyse and summarize sales and leasing information to determine subject property value (links to ULO2)
2. Perform valuation of subject property using appropriate valuation methodologies and application of variables (links to ULO2 and ULO3)
3. Justify and explain valuation determination in a manner that clearly demonstrates understanding of applied valuation methodologies’ strengths and weaknesses and applications (links to ULO2 and ULO3)
4. Communicate findings accurately and professionally in accordance with industry practice standards (links to ULO3)

The skills and knowledge noted above are highly regarded by property professionals and employers.

These specifically relate to the Unit Learning Outcomes:

ULO2- Analyse the investment viability of property assets utilizing contemporary industry methodologies and data

ULO3- Apply discipline knowledge and investment analysis methodologies to make informed Judgements.