Question 3

(a) Laura is one of your clients and she has heard that car parks are a good investment and that higher returns can be expected compared to alternate investments. Although Laura is an experienced property investor, she has never invested in this property type. She wishes you to explain appropriate valuation methodology for this asset class.

Nominate the valuation methodology most likely to be used in each of the following scenarios and explain why they are best used:

(i) Purchase of a single strata carparking space within a large strata titled carparking facility.

(ii) Purchase of a 200 space carparking asset that is under a management agreement and subject to an expiring short-term lease to an external operator.

(iii) Purchase of a 200 space carparking asset from an owner-operator with a track record of consistent daily occupancy.

(b) Another of your clients is proposing to purchase a 60-room motel and requests that you advise them on an appropriate going concern value of the property on an owner-managed basis. There is limited information available from the vendor; however, you are able to ascertain the following information:

Room revenue: $1,200,000

Restaurant revenue: $200,000

Operating and fixed expenses: $650,000

Cost of sales: $200,000

Two motels have recently sold in the same suburb reflecting passing yields of 11%, which you consider to be a reasonable reflection of the current market.

Considering the above, what is the acquisition value per room?

(c) What method of valuation might be used by an investor for acquiring a low grade motel that is experiencing diminishing returns and the landholding is identified to be put to a higher and better use? Why might the acquisition cost vary between competing investors?