Valuing Investment Property under Construction - EPRA

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Appendix II – Rejected principlesPrinciple1. If risk is not explicitly allowed for elsewhere in the valuationprocess - for example construction costs and GDV - then:a) the discount rate should reflect the market riskpremium, and is by definition higher than the rateused for valuing the completed and fully let property;b) different rates may be necessary on differentelements - for example a higher discount rate foroutgoings (higher risk = lower discount rate) ascompared with income (higher risk = higher discountrate).Reference to EPRA Meeting: Principle 8 (partially).2. The required risk premium should be based on the premiumtypically required by developers in the subject market at theeffective date of the valuationReference to EPRA Meeting: Principle 9.3 Project uncertainties which are not reflected in the riskpremium must lead to an even higher discount factor, or to alower project gain, or must be factored in via othertechniques such as the Real Options Model or Monte CarlosimulationReference to EPRA Meeting: Principle 12.RationaleThis was found too prescriptive. The attendees, however, agreed with the generalprinciple that project risks should be explicitly allowed in the valuation. It is theappraiser who must identify how he has factored in the remaining risks into thevaluation.As aboveAs above.8November 2008 - Valuing Investment Property under Construction
Appendix III - Attendees at the EPRA roundtable meeting in StockholmAd Buisman (Chairman)Gareth LewisPeter van RossumBert Jaap DijkstraOlivier ElamineMarcus PostLuciano GabrielJan HaarsGraham RobertsDavid SleathDennis De VreedeArjan SpruitCraig HughesMatt WilliamsHans GrönlohJonathan ThompsonChris ThorneAndrew BarberErnst & YoungEPRAUnibail Rodamco(Chairman of EPRA Reporting &Accounting Committee)Unibail RodamcoAlstriaING Real EstatePSP Swiss PropertyCorioBritish LandSEGRORedevCoRedevCoErnst & YoungErnst & YoungKPMGBPF / KPMGIVSCRICS / CBREFor any comments on these recommendations, contact Gareth Lewis:gareth.lewis@epra.com, or call: +31 20 405 3841About EPRAThe European Public Real Estate Association - is the voice of the publicly tradedEuropean real estate sector.With more than 200 active members, EPRA represents over EUR 300 billion of realestate assets and 85% of the market capitalisation of the FTSE EPRA/NAREIT EuropeIndex. EPRA works to encourage greater investment in listed real estate companies inEurope through the provision of better information to investors, improvement of thegeneral operating environment, encouragement of best practices and the cohesion andstrengthening of the industry,9November 2008 - Valuing Investment Property under Construction
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Valuing Investment Property under Construction - EPRA

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