RICS APC Case Study: Commercial Real Estate Example

When writing my own APC Case Study, I found that looking at past example submissions was an invaluable resource. It gave me a clear sense of how to structure the 3,000-word report and in this post, I’m sharing a successful case study that helped a colleague pass their APC in 2021 for the Commercial Real Estate pathway. I hope this example will provide you with a useful insight into structuring your own case study and act as a helpful reference point.

RICS APC Case Study Example: Commercial Real Estate

Confidentiality Statement

The following case study contains confidential information included for the purpose of the Assessment of Professional Competence. The Client’s details have been removed due to confidentiality agreements and they are referred to throughout this report as “The client”. My Firm have given their consent to disclose details for the case study on the basis that the information is not to be used for any other purpose or by any person other than those authorised by the Royal Institution of Chartered Surveyors.

Contents

Introduction
My Approach
My Achievements
Conclusion
Appendix A – Competencies Demonstrated in this Case Study
Appendix B – Project Photographs

Introduction

This case study reflects on my involvement in the valuation of Residential Development, (‘the Property’) in April 2021. The Property comprised a freehold Georgian style building with Grade I listed façade, which extended across 5 storeys. The Property was formerly used as offices and had planning consent for change of use from office (B1) use to residential use (C3) for 17 apartments. I undertook the valuation in accordance with the RICS Red Book on behalf of (the Client’). (‘My Company’) was instructed to carry out a valuation of the Property for loan security purposes in respect of a proposed loan facility to be granted to the Borrower. My work was supervised by Mr John Baker MRICS, RICS Registered Valuer, Director, (‘my Supervisor’).

Image of the Residential Development (Front Elevation)

Project Background

My Company received instructions from the Client on 14 April 2021 to provide a valuation of the Property on the following bases:

The current Market Value of the freehold interest of the proposed scheme.
The Market Value of the completed units (the Gross Development Value).

Prior to accepting the instruction I carried out a conflict of interest check, which indicated that my Company had no relevant prior or current involvement with the Property or the Borrower and therefore there was no conflict of interest in providing an independent valuation in accordance with the RICS Red Book.

I carried out an inspection of the Property with my Supervisor on 17 April. We were able to inspect the majority of the Property, both internally and externally, but limited to those areas that were easily accessible or visible. Conversion works had commenced on the date of our inspection.

Property Location

The Property is located on the north side of Filbert Street a Georgian square in the St Pauls area of Bristol approximately 0.7 miles to the north east of the city centre. St Pauls, along with other areas of Bristol, was heavily bombed during the 2nd World War, resulting in extensive damage to a number of buildings. I was informed that the Property was partially destroyed and subsequently rebuilt in its present form in the 1970’s. St Pauls has historically suffered from a poor reputation linked to issues of social and economic deprivation. There is also a high proportion of social housing in the area which can have a negative influence on residential house prices; however, there has been significant progress in regenerating the area in recent years. A location and site plan is attached at Appendix B.

Property Description

The Property had an ashlar stone facade which was Grade I listed in a classic Georgian style, behind which was a concrete frame structure and concrete floors. The ground and first floor levels had high ceilings and large windows. The second floor ceiling height was slightly lower, whilst the third floor and lower ground floor levels reduced in height further. The front elevation had traditional single glazed timber sash windows, whilst to the rear were metal framed single glazed windows. Photographs of the Property taken on the inspection are attached at Appendix C.

Scheme Proposals

I was provided with scaled plans and a schedule of accommodation by the Borrower’s architect. Due to construction works, it was not practical to measure the whole building, I therefore undertook some check measurements, to ensure that the schedule and plans provided was a true reflection of the proposed floor area. I relied on the schedule and architect’s plans for the purpose of the valuation and stated this clearly within my report.

A schedule of accommodation as proposed is shown below:

Unit	Floor	Bed	Sq M	Sq Ft
1	Lower Ground	1	63	674
2	Lower Ground	1	55	595
3	Lower Ground	1	64	694
4	Ground Floor	3	100	1079
5	Ground Floor	4	159	1716
6	First Floor	2	71	762
7	First Floor	1	45	486
8	First Floor	2	64	692
9	First Floor	3	96	1037
10	Second Floor	2	71	762
11	Second Floor	1	45	486
12	Second Floor	2	64	692
14	Second Floor	3	96	1037
15	Third Floor	2	71	763
16	Third Floor	2	62	665
17	Third Floor	2	60	646
18	Third Floor	2	59	637

	Total		1247	13423

My Approach

Key Issue One: Determining an Appropriate GDV

Although close to the city centre, St Pauls was an area that is relatively untested for new build development and is still undergoing regeneration. A key challenge of my valuation was therefore to assess the Gross Development Value (GDV) of the proposed development.

In order to accurately arrive at my opinion of GDV, I used the comparable method of valuation, gathering and analysing a range of comparable evidence. My options with regard to selecting appropriate comparables were as follows:

new build/ new conversion comparables within the immediate area
new build comparables within a wider search area
comparables from the second hand market

In searching for evidence I used a number of sources including Rightmove Plus, Land Registry House Price Data and through conversations with local agents. Whilst my analysis included properties being currently marketed, my searches relied predominantly on achieved sold prices, rather than asking prices, to ensure the most accurate evidence was gained.

New Build Comparables from the Immediate Area

From my inspection, it was clear that the local area was not an established residential community, with much of the surrounding properties being predominantly used for commercial offices. Nevertheless, the residential development at Hillsborough Road, which occupied the building directly behind the subject Property, did provide a good direct comparable. Altitude comprised a conversion of a former 1970s office building, which originally formed a rear extension of the Property. The scheme comprised 21 two and three bedroom apartments and was launched in September 2013. Achieved prices at the scheme reflected an average of £261psf and indicated that there was a good market for flats within the area, achieving relatively strong values for the location and a good rate of sales. In comparing Altitude to the Property, I considered that due to the more attractive style period building, with better outlook across the square, the completed units at the Property would achieve higher values.

New Build Comparables – Wider Search Area

In order to get a better understanding of the market appetite for new build apartments I decided to extend my search wider across the city centre for new build schemes within a 0.5 mile radius. A great deal of the new build apartment stock in the years immediately prior to 2014 had centred around Bristol Harbourside, which is about 1.4 miles away and to the west of the centre. In my opinion, this was a much stronger and more established residential location that typically achieved values far greater than St Pauls and most of the city centre and therefore I ruled these schemes out for comparison purposes. 27 I identified Horizon and Eclipse, a recent development associated with the Cabot Circus shopping centre scheme. The development was only about 0.3 m away from the Property, but more centrally located and with views across Castle Park. After talking with in house and external agents, I concluded that this was considered a much more prestigious scheme and in a better location and therefore more valuable than the proposed units at the Property on a ‘ticket price’ basis.

Second Hand Comparables

Having researched relevant new build comparable evidence nearby, which was particularly relevant to the 1, 2 and 3 bedroom units in the scheme, I widened my search area in order to find evidence relevant to the 4 bedroom flat. This was somewhat more of an unusual product, with limited evidence in the area. I therefore considered the values achieved by second hand four bedroom houses as well as large three bedroom flats, where relevant. My research found that there was a strong demand for period style properties within the nearby districts of Cotham and Montpelier and I identified a reasonable amount of evidence of period style conversions. These areas were typically more valuable locations than St Pauls and being more established and sought after residential areas with a better quality of housing stock. It was also clear that houses commanded a premium over flats.

Valuation Considerations

I organised a conference call and presented the client with my proposals. The first option was to review the procurement strategy. I discussed a change from Intermediate to a Design and Build contract. This option would reduce the design period and allow the design to progress throughout the tender period. Although the client agreed with this change, they also noted that they wished to have greater control of the design finishes through the design standards team and wanted me to drive the changes. The client was also more comfortable with me taking the design forward, following my involvement at feasibility stage and my initial discussions with the various stakeholders. Secondly, I discussed a change from single stage to two-stage tender. I noted that this option had the potential to reduce the programme however, it would increase the cost uncertainty. The client noted that they did not wish to change the tender strategy due to the potential cost implications.

Following this I presented the second option. I advised that an alternative solution could be to submit the tender documents to the contractor up to RIBA Stage 4 whilst continuing to finalise the design. I advised that this option would minimise the design period by overlapping the tender period. I confirmed that the tendering contractors would be made aware that the design may change throughout the tender period. I also advised the client that a suitable contingency should be included to allow for any changes raised post tender. The client agreed and I approached potential contractors from their framework to gauge their interest.

I organised an onsite meeting with the client, staff, security standards team and the M&E consultant to obtain feedback from the design and record observations and requirements raised. I also walked through the proposal with the stakeholders and sketched alterations to the initial design. These changes were agreed at the meeting and included within the tender pack. All parties were made aware that another opportunity to revise the design further would be possible during the tender period. I also contacted the design standards team to explain the change in programme.

When writing the specification, I used well known suppliers which provided a good range of products for office fit outs. This ensured that the products were readily available, and pricing was competitive and easily sought. Throughout the specification I chose finishes and designed forms of construction which were slightly higher specification to ensure that there was enough capacity in the contract sum, should any changes occur post tender.

During the tender period I revisited the design and specification with the stakeholder and the design standards team. Overall the impact of their feedback was limited to changes of colours to walls, carpet finishes and internal doors were changed from vinyl wrap to timber veneer. I then amended the tender documents, sought final approval and highlighted these to the contractors to allow them to adjust their tenders in the last week of the tender period.

Key Issue Two: Determining an appropriate main build cost

In order to undertake a residual appraisal and determine the Market Value of the Property, I needed to establish and apply an appropriate build cost for the proposed development.

Contractor Estimate

The proposed works involved the conversion of the existing office into residential apartments. The Borrower had provided a cost estimate produced by a well-known local contractor who has undertaken numerous new apartment schemes in central Bristol, which my Company had seen, valued or sold. A contract had already been agreed between the contractor and Borrower and work had recently commenced at the Property. This gave me some reassurance that the works would likely have been appropriately costed. The cost plan provided by the Borrower was broken down into a schedule of the various elements of the anticipated build at the Property. I analysed this breakdown in order to determine a basic ‘main build’ cost for the works, measured on a £ per square foot basis, exclusive of professional fees, abnormals and contingency. The Borrower’s ‘main build’ cost equated to £90 psf (£969 / sq m.) which I then compared to local average tender prices using BCIS (the Build Cost Information Service).

BCIS Analysis

Using BCIS to find average tender prices, I focused my search by build type looking at ‘conversion/rehabilitation’ and by property type (‘flats and apartments’), I then rebased to Bristol. This enabled me to analyse the results more specifically to the location and nature of build. The BCIS data was reported on the following bases: generally, 3-5 storeys, 6+ storeys. Due to the five storey nature of the building, the 3-5 storey average prices were the most suitable to compare to the Borrower’s cost estimates to. The Borrower’s ‘main build’ cost of £90 psf (£969 / sq m), was between the BCIS median and upper quartile average prices for flat conversions of 3-5 storeys in the local area.

Conclusions & Considerations

Taking my findings into account and after discussing with my Supervisor and a qualified building surveyor within my office, we determined that the Borrower’s build cost estimate was realistic for the proposed development and I therefore adopted the rate of £90 psf for the purpose of my appraisal. I clearly stated my approach within the valuation report, along with my rationale behind the other key inputs to the appraisal. The subsequent land value was sense checked to other known development comparables of similarity, known to my Company within Bristol. A copy of the appraisal is attached at Appendix F.

My Achievements

Reflecting on the achievements of this instruction I have successfully produced a report in accordance with the Red Book, which was reviewed and signed by both my Supervisor and another RICS Registered Valuer in my office. I achieved this through effective due diligence, following the appropriate guidance and asking for assistance and verification from my Supervisor where necessary. I was involved in the instruction from start to finish, from assisting in drafting a confirmation of instructions letter, to inspecting the Property, through the due diligence process and finally to reporting to the Client and advising on the value and suitability for loan security of the Property. With the support of my Supervisor, I was able to provide advice to the Client on various elements of the valuation and establish good relationships through acting professionally and engaging in effective communication throughout the process, most notably in relation to timescales and discussing our findings. After inspecting the Property, I gained a better appreciation of the local area and nature and setting of the building, which I considered in relation to my comparables and reflected in my opinion of value. From my inspection, I was also able to comment on the general condition of the building and current extent of building works undertaken to date. One of the key requirements of the Client was to ensure the Property was valued in accordance with the current planning consent. After due diligence enquiries into the planning history in relation to the Property, I advised the Client on the current planning status at the Property and ensured my opinion of value reflected the current consent and not any pending or historic decisions. Following a detailed comparison of the Borrower’s cost estimates, against those of local average prices and liaising with an experienced building surveyor in my office, I was able to establish an appropriate main build cost for the works at the Property. This, along with my opinion of GDV and other well researched inputs formed the basis of my development appraisal for the proposed development. I advised the Client on the various other inputs used and the subsequent Market Value of the freehold interest of the Property. I ensured all data provided was from accurate sources and presented to client in a clear format.

Conclusion

The report for my client was a rewarding exercise which enabled me to gain a good understanding of a building’s conversion from commercial to residential use whilst also developing my valuation skills. Overall, I was pleased with the outcome of the instruction. The report was comprehensive and detailed, it met the requirements set and was provided within our anticipated timescale. Any assumptions or key findings were highlighted and discussed with the Client before being noted in the report, including my interpretation of comparable evidence. This ensured all key information was clearly defined and the Client was happy, with no further questions surrounding our report when it was issued. 30 My assessment of the development’s GDV was somewhat challenging as there was only limited evidence of newly converted property within the vicinity. Despite this, I was still able to gather sufficient comparables, both new build and second hand, to create a robust evidence base for my assessment and calculations, which included judgement on the potentially negative influence of the surrounding area when compared to other traditional residential areas. Since the report sign off in April 2014, there has been further market improvement witnessed within Bristol and sales at the scheme have subsequently achieved higher values than those reported. Due to relatively short time constraints in reporting, I found the timing of gaining comparable evidence was crucial. A local agent who had details of a few comparables was unable to be contacted until two days before the report was due for issue. In future I shall endeavour to allow more time for comparable research and to undertake some enquiries prior to my inspection, in order to undertake a ‘drive by’ of relevant comparables. With regards to the Property inspection, I feel I could have improved upon my level of inspection notes and photographs. Due to insufficient lighting and work taking place, some photographs did not come out perfectly or capture all desired aspects of the Property. I would also have benefitted from taking more notes/photographs relating to the aspect on each floor of the building, as this turned out to be an influence on my opinion of value for each unit. On reflection, I shall in future take more care when taking relevant and clear photographs and ensure that I back these up with detailed inspection notes.

Reflective Analysis

From this instruction, I have a better understanding of how to draft a valuation report in accordance with the RICS Valuation Professional Standards 2014. The instruction improved my knowledge of the comparable and residual method of valuation and when it is appropriate to use these methods, as well as improving my ability to critically evaluate and interpret comparable evidence. My research into the Bristol city centre residential market and immediate areas has also provided me with a more detailed understanding of relative values in and around the city. I carried out the inspection following the principles of the RICS guidance note Surveying Safely (2011) and my Company’s Health and Safety Policy. I now have a better understanding of the health and safety procedures required prior to and during an inspection and what personal protective equipment (PPE) is required when on a development site, particularly when construction activity is underway. I have also gained a better understanding of the planning system and the content of planning applications. By carrying out statutory enquiries I developed a greater understanding of use classes and listing status, as well as planning obligations such as the community infrastructure levy (CIL) after reviewing the Council’s CIL charging schedule. For the purpose of my data collection and due diligence, I consulted a variety of sources to collect information to assist with my valuation. This improved my use of property records and information systems and the recording and storing of data, as well as highlighting the advantages and disadvantages of online databases. 31 Given the challenges of this instruction, I have appreciated the benefits of working within a multi-disciplinary company and the ability to consult my colleagues from various specialisms in order to assist with my valuation and ensure the best and most informed advice was provided to the Client.

Total word count (Maximum 3000 words) – 2982 (Excluding Contents Lists and Tables)