GVA spots secondary property opportunities
We are about to enter an exceptional period of opportunity for buyers of secondary property, says GVA. In its recently published guide to secondary property, the firm says pricing is becoming more realistic as vendors and advisers “are slowly and reluctantly waking up to the fact that not all secondary property should be valued at 10% Net Initial Yield”.
Where properties are subject to vacancy and purchasers will be liable for vacant service charges and empty rates, GVA says “lazy valuations” using traditional NIY are dangerous, as they are based on an inappropriate measure of value. It says IRR, ‘Triple Net’ running yield and capital value analysis are far more appropriate – and more often than not a combination of all three is best. Where properties are subject to vacancy and purchasers
The firm says investors should track mis-priced stock and “be brave enough to selectively invest over the next 24 months to successfully implement asset management plans that deliver excellent (and well deserved) returns,” the firm says. It notes that investors will need cash rather than debt to finance their purchases, and patience – to work with distressed vendors who may have more complex and time-consuming sales processes than traditional vendors.
Landlords are also becoming increasingly aware that, unless they are prepared to execute a business plan themselves, they probably ought to sell their asset, in view of value erosion and the opportunity cost of deploying the sale proceeds, GVA adds.
GVA feels that unless landlords have a proactive approach towards adding value to their secondary property, they should sell. The new EPC-related legislation is expected to add to the downward pressure on some secondary property values, it notes.
While the sale of a secondary property may lead to a loss being realised, “the fact remains however that if a secondary property is in a distressed position with respect to its debt financing and nothing is being done to add value to the asset, its value will either stagnate or depreciate to Vacant Possession Value or worse,” the firm warns. It says landlords can act to minimise risk by acting quickly and streamlining their sales processes.
