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SCHOOL OF BUSINESS200603 - COMMERCIAL VALUATIONLECTURE 11 of 12Due Diligence Process
Last week we discussed …Retail property valuation:•Introduction to the NSW Retail Leases Act•Retail demised area measurement (GLAR)•Major classifications of retail properties•Location, design and demographic considerations•Report headings and valuation analysis•Mortgage security retail valuation reporting requirements•Weighted Average Lease Expiry (WALE)
This Week (Lecture 11)Due diligence process:•Introduction to due diligence process•Valuation issues and due diligence process•Legal / land title issues and due diligence process•Town planning / development issues and due diligence process•Property location influences and due diligence process•Property design influences and due diligence process•Leases and due diligence processList of References
Introduction to due diligence process….
Multiple definitions:•A comprehensive appraisal of a commercial property undertaken by a prospective buyer, especially to establish its positive aspects and actual/potential liabilities and finally thus evaluate its overall commercial potential.•Due diligence is the process of systematically researching and verifying the accuracy of a statement.•Measure of prudence, responsibility, and diligence that is expected from, and ordinarily exercised by, a reasonable and prudent person under the circumstances.•Duty of the investor to gather necessary information on actual or potential risks involved in an investment.
In regards to valuation of commercial property:In the course of their careers, commercial valuer’s may be called upon to assist clients with: Formal valuation reports for mortgage security and other purposesPre-purchase / Pre-sale adviceFacilitation of Investment due diligenceRetail/Commercial letting and adviceNo-recourse based private mediation (commercial disputes)And many other possible matters……..Thus, as a professional, having regards to due diligence will be most prudent.
In regards to Valuers work:The Valuation profession as regulated in Australia by the API and RICS provide guidelines as to professional scope and limitations of a Valuers work.The Valuer necessarily needs to understand where property valuation may overlap with other professionals works (and thus perhaps not be covered by professional indemnity insurance) , those other potential overlapping scopes may include:Provision of investment advice (ASIC regulated)Provision of managed investment schemesProvision of property syndicate schemesTax and accounting adviceTechnical and engineering determinationsEnvironmental determinationsSpecialised town planning adviceLegal advocacy and advice
Valuation issues and due diligence process….
In regards to comparable sales methodology:Points to be considered in relation to both the subject property andcomparables include:locationsize and type of the property