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Real Estate Valuation

Instructions:

Seven years ago Avon Tyres let a property to Bridgestone Ltd. by means of an FRI lease for 15 years with upward only rent reviews every 5 years. The current passing rent is £120,000 per annum. One year ago Bridgestone Ltd sublet the property to Fulda UK on similar FRI terms but at a rent of £124,800 per annum for the first year but with annual increases thereafter to 3.5% per annum.

From your comparables you determine that current rental growth is 4% per annum and you are advised that investors’ target rates are typically in the order of 13% for investments of this nature.

Clearly stating any assumptions you consider it necessary to make, prepare a calculation of worth of Bridgestone’s interest and advise them how to respond to an unsolicited offer of £50,000.

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