External property valuations must be performed at least once per year for all properties.
External property valuations are generally required for:
- (statutory) financial reporting;
- management reporting to shareholders and other stakeholders;
- performance measurement and (incentive) fee determination;
- regulatory authorities;
- securing finance / debt and on-going loan covenant compliance;
- corporate acquisitions and assessment of enterprise value.
Valuing property at least once per year does not mean all properties have to be valued at one time or necessarily at year-end, although this is best practice. More frequent external valuations or internal valuations may be undertaken to comply with the specific reporting requirements of the vehicle.
Although the professional valuation standards of the external valuers would already require physical inspection, this requirement has been included here in order to impose a partial responsibility in this respect on the manager as well.
In addition, for large portfolios, and based on its professional judgment, the external valuer may consider using a rotation principle on a three year rolling basis for the physical inspection of properties that have a homogeneous risk profile such as portfolios of residential units or storage space. If a rotation principle is applied by the external valuer, the manager should ensure that this approach is reasonable.
Newly acquired properties and properties undergoing significant (re)development activities should be included in the physical inspection sample of the year.
The manager must ensure that comprehensive, appropriate and transparent information is provided to the external valuer to enable it to undertake a proper valuation and to enable it to make its own assessment of expected costs, including estimates of long-term maintenance and/or ground pollution costs.
The manager must inform the external valuer in sufficient detail and not withhold any information that may be relevant to the property valuation. Examples of the kind of information provided by the manager to be used in determining property valuations and which may be verified by the external valuer with source documentation include lease/rent roll information, lease incentives granted, refurbishment costs, measurement data, property operating expenses, real estate taxes and any other information in connection with changes of market circumstances, tax and regulatory changes.
The manager should ensure that the legal ownership right (i.e., leasehold, freehold) and any restrictions or encumbrances are properly reflected in the value assessment.
The manager should provide the external valuer with all the latest developments regarding any known environmental issues.