Guidelines

The investment manager, together with the governing body of the vehicle, should design and operate an effective system of internal controls over a vehicle’s property valuation process.

Control objectives should include, but are not limited to:

• Ensuring that external valuers have been engaged in accordance with industry protocols;
• Ensuring that all relevant data has been provided to external valuers in a reasonable timeframe;
• Ensuring that valuation timing and frequency are consistent with the valuation policies foreseen in the management regulations;
• Ensuring that all data used in the valuation process is accurate, relevant, and up to date;
• Ensuring that the scope and methodology used to determine the market value of property reflect the legal requirements of the vehicle and applicable valuation standards;
• Understand the judgemental inputs used by the valuer in the valuation approach and the justification that they are unbiased and best reflect market circumstances. An audit trail of any subsequent discussions between the manager and the valuer and changes to the initial draft should be maintained;
• Ensuring that the scope of valuation models are adequate and that they have mathematical integrity. Valuation software can vary significantly depending on their level of automation, complexity, and exposure to manual input error risk;
• Considering appropriate back-testing when reviewing cash flow forecasts to validate reasonableness;
• Ensuring that appropriate consideration is given to the work and findings of other parties, such as internal or external auditors;
• Ensuring that significant asset-level events (eg lease termination for anchor tenants, material damage) and market events (eg exceptional circumstances impacting capital markets) are appropriately reflected in the market value when there is a timing difference between the actual date of external valuation and a later reporting date.

The governing body of the vehicle should undertake a review of the continuing appointment or re-appointment of the external valuer on a regular basis and at least once every three years.

The assessment of the external valuer firm is an ongoing process. A formal assessment should take place at least once every three years, with the objective that the external valuer firm is the best-suited valuer to perform the valuation. The results of the assessment should be reported to investors.

The assessment may result in a rotation of the external valuer firm. The assessment should also include an evaluation of whether the external valuer firm is properly insured against claims and its compliance with regulations, for example, the Alternative Investment Fund Managers Directive (AIFMD) in Europe. In the event of rotation, there should not be any affiliation between the external valuer firms.

See also G25 of the inrev-guidelines">INREV Governance module for guidelines on reviewing the performance of other service providers.

The investment manager should ensure that property valuations are performed at least once a year. The frequency of valuations should be described in the vehicle documentation and should reflect the expectations of investors and the ongoing business needs of the vehicle concerned, such as vehicle pricing considerations.

At a minimum, the scope of external property valuations should include consideration of all properties once a year. More frequent valuations may be required depending on economic circumstances or investor needs. Certain market conditions may present significant uncertainty and volatility requiring more frequent valuation updates. In addition, transactions such as the issuance or redemption of units/shares in certain vehicle types may require specific valuations.