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Prepare a discounted cashflow (DCF) appraisal on this property to determine whether your client should acquire it for the ‘Athena’ portfolio.

Module name: Real Estate Investment
Module code: INV7REV
Assignment 2
Level 7
Programme start month and year
Assignment due time and date
Pass mark 50
Word count 3,500–4,000
Submission details
For this assignment, you are required to submit:
• a report in Word or similar;
• a spreadsheet of calculations using Excel or equivalent.
Please upload your work separately and ensure you submit the report file first.
Please refer to the assignment guidance in the assignment area of the module for further guidance on the file types accepted by Turnitin.
© University College of Estate Management 2018 Page 2 of 12
Learning outcomes
A1 in-depth and systematic understanding of key investment concepts to facilitate strategic real estate investment decision-making
A2 comprehensive knowledge of property investment markets including stakeholders and market structure
A3 knowledge and critical understanding of the different funding options and approaches for real estate investors
A4 critical awareness and understanding of the evolving investment environment and emerging investment concepts
B1 evaluate and make logical and reasoned investment judgements in the absence of complete data
B2 research, collect and synthesize complex investment information
C1 systematically evaluate complex issues and information to aid investment decision-making
D1 act autonomously in real estate investment decision making
Note: All tables and graphs supplied in this Assignment (including Appendices) were created by David Hourihan. For referencing purposes, use: Hourihan D (2018) ‘The ‘Athena’ Portfolio’, Reading: UCEM.
You are an investment surveyor at ‘UCEM Investments’, a boutique investment firm based in Edinburgh, Scotland. Your day-to-day responsibilities include the management of several client investment portfolios for international investors.
As part of your remit you are responsible for the management of ‘The Athena’ portfolio, a mixed portfolio of UK investments.
Your client on this portfolio, ‘Dreamcatcher Investments’, is based in Hong Kong. They are long-term investors and are generally risk averse regarding their real estate investments. As a result, they generally acquire Core or Core Plus type investments.
Further details about the ‘Athena’ portfolio are available in Appendix 1.
Cash funds of approximately £50m have become available within ‘The Athena’ portfolio and your client has instructed you to invest these funds directly into real estate. To this end you have just received details from a broker on ‘Unit 5 Primrose Way Distribution Park, London’, an industrial investment opportunity, which is currently available ‘off market’. Summary details of this investment is in Appendix 2.
Your client also now wishes to launch a second mixed ‘green’ commercial property fund called ‘The Poseidon’ portfolio. This fund will focus on socially responsible investment and offer direct exposure to the German and French investment markets. Like ‘The Athena’ portfolio this portfolio will hold Core and Core plus properties.
© University College of Estate Management 2018 Page 3 of 12
You have been instructed by your client, ‘Dreamcatcher Investments’, to prepare a fully referenced client report giving recommendations and conclusions both on the performance of your client’s existing investment portfolio (‘The Athena’ portfolio) and on the key considerations for the creation of a new specialist investment portfolio to be known as ‘The Poseidon’ portfolio.
For ‘The Athena’ portfolio you should report on:
• the possible acquisition of Unit 5 Primrose Distribution Park. Prepare a discounted cashflow (DCF) appraisal on this property to determine whether your client should acquire it for the ‘Athena’ portfolio. Your appraisal should include sensitivity and probability risk analysis on this investment proposition.
• the performance of the ‘Athena’ portfolio over the last seven years benchmarked against the in-house ‘All-property’ index.
• recommendations on how to rebalance the portfolio in accordance with the new five years strategy.
For ‘The Poseidon’ portfolio you should report on:
• how to create, manage and measure the performance of the new ‘Poseidon’ portfolio of Core German and French properties.
• an investment strategy and a set of objectives for this fund. You are required to make all relevant assumptions explicit regarding the strategy and objectives.
• a summary assessment that identifies the key trends currently affecting the funding market for real estate investments in France and Germany. Your assessment should make recommendations on funding options for your client.
• a property search undertaken by you in the German and French commercial property investment markets in which you identify one ‘green’ commercial property investment currently ‘For sale’ that you believe would be a potentially suitable acquisition for the new portfolio. Prepare a profile (10–15 points) on this property summarising the key characteristics of this investment and provide recommendations to your client on why it might be suitable for this fund. (You are not required to prepare a DCF model as part of your profiling of this investment opportunity).
Additional guidance
Reference List and Bibliography
You should include a reference list with at least 15 separate relevant and appropriate sources that you have written about and directly cited within your work.
A bibliography of uncited sources is not required.
© University College of Estate Management 2018 Page 4 of 12
Appendix 1 – The ‘Athena’ Portfolio
A mixed portfolio of mainly retail, office and industrial investment properties across England and Wales, which is currently valued at approximately £750m.
Your operational objectives for this portfolio are to:
• assemble a balanced and well-diversified property portfolio.
• record overall returns that will outperform the in-house ‘All Property Index’.
• pursue opportunities to purchase or dispose of properties that will maximise the returns of the portfolio at an acceptable level of risk.
• acquire properties that provide stable income streams, good initial yields and attractive rental/capital growth prospects over the holding periods.
The current portfolio composition/balance (by type and value) of the ‘Athena’ portfolio is as follows:
Table 1: Athena Portfolio (actual balance)
Further details on the portfolio and performance data for the 7 years’ period 2012–2018 are shown below.
You are currently developing a new five years strategy for the portfolio and have adopted the following target portfolio balance (which is in line with the AREF / IPD UK Quarterly Property Fund Index (Dec 2017)) to be achieved by the end of this period:
Table 2: Athena Portfolio (target balance)
Source: MSCI (2017) ‘Aviva Investors UK Property Fund’, in
AREF/IPD Property Fund Vision Handbook Q4 2017, MSCI, 62
As part of the new five years strategy a hurdle rate of 8% has been determined by your client as the ‘Athena’ portfolio’s minimum required internal rate of return (IRR) on all new acquisitions. Assets selected to be added to the portfolio must have the potential to achieve total returns at or in excess of this level.
Individual investment opportunities available for the fund will be analysed over a 10-years holding period. These investments shall be subject to cash flow and risk analysis.
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‘The Athena’ portfolio (by type and value) as at 1 September 2018:
‘The Athena’ portfolio ‘Total Returns’ and market benchmark data for the period 2012–2018:
© University College of Estate Management 2018 Page 6 of 12
Appendix 2 – Unit 5 Primrose Way Distribution Park, London
Asking price: £53,000,000
• For the purposes of your calculations the appraisal date is the 1st January 2019.
• Reliable information on the local office market has shown that there has been an annual rental growth rate of 5% per annum over the last three years.
• Client’s hurdle rate of return is 8%.
• The holding period for this investment is 10 years, after which the investment will be sold.
• The disposal value will be assessed on the basis of the expected rental value at the date of the disposal and subject to a capitalisation rate, which would reflect the age and obsolescence of the building.
• Rents are collected quarterly in advance. Rent reviews occur at the end of the specified periods and affect rental levels thereafter.
• The lease in the investment is on a ‘Full Repairing and Insuring’ basis.
• Acquisition fees will be as follows:
• Disposal fees will also be at 2.4% (i.e. 1% plus VAT at 20% for agent’s disposal fees and 1% plus VAT at 20% for legal fees).
• Rent review fees will be at 7.5% of the revised rent.
(Disclaimer: The property in this appendix is entirely fictitious. Any resemblance to real properties are coincidental.) as at01/01/2019UnitTenant NameLease Start Next ReviewLease Length (Years)Break OptionsExpiry DateUnexpired Term (Years)Total Area (sq ft)Total Area (sq m)Car SpacesCurrent Rent £paEstimated Rental Value (ERV)Rent £ per sq ftRent £ per sq m5Aldi Stores Ltd01/01/201001/01/202020None01/01/203011.01250,910 23,3100£3,395,873£3,500,000£13.53£145.68 Tenancy Schedule.

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