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Rural Jigsaw: conventional and unconventional valuations of amenity trees, renewable energy and new...

Date post: 07-Dec-2014
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Slides for RICS Wales Rural Conference at Llandrindod Wells on 4 December 2012. Covers Vauation of trees for amenity purposes, valuation of renewable energy installations and the importance of Ecosystem Services (and their valuation) to future rural professional practice
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Charles Cowap MBA MRICS FAAV A Rural Jigsaw: Traditional and new challenges to valuation and estate management: trees, energy and ecosystem services Charles Cowap Llandrindod Wells 4 December 2012
  • 1. A Rural Jigsaw:Traditional and newchallenges to valuationand estate management:trees, energy andecosystem servicesCharles CowapLlandrindod Wells4 December 2012Charles CowapMBA MRICS FAAV

2. Valuation of trees foramenity and relatednon-timber uses RICS Guidance Note Part of the Red Book suite Guidance on the valuation of: Trees Groups of trees As part of property As separate asset Scope: UK Interest: worldwide!Charles CowapMBA MRICS FAAV 3. The Red Book RICS Valuation Standards Suite of: Practice Statements Guidance Notes Information Papers Charles Cowap MBA MRICS FAAV 4. Why? The need to value treesfor variousrequirements Emergence of variousmethods Need for guidance ontheir relationship to RedBook concepts likeMarket ValueCharles CowapMBA MRICS FAAV 5. How?Valuation Basics: Methods Skills and knowledge Terms of engagement Specific information which may be needed Valuation Basis Market Value Worth Fair Value Existing Use Value Charles Cowap MBA MRICS FAAV 6. How?The Facts Site and legal interest Statutory designation andother forms of protection Current and proposed siteuses Health and condition, signs ofstress Liability issues Assumptions and specialassumptions Charles Cowap MBA MRICS FAAV 7. METHODSCharles CowapMBA MRICS FAAV 8. Tree valuation is big newsBig figures are touted to end the chain saw massacre Charles Cowap MBA MRICS FAAV 9. 1. CAVATCapital Asset Value for AmenityTreesChris NeilanCharles CowapMBA MRICS FAAV 10. CAVATCapital Asset Value for AmenityTrees Basic value: unit value x size Community Tree Index Value: population, use,accessibility Functional value Adjusted value/amenity factors (+/-) Full value/safe life expectancy Charles CowapMBA MRICS10FAAV 11. How CAVAT (probably) worked:Tree Diameter of 184 cm x Unit Value Factor of 13.18 350,285Community Tree Index Factor based on pop density of 284.4/ha and relative accessibility of 200% x 100%Functionality based on crown size and condition of1100%Amenity and appropriateness based on1.4Townscape and visual importance + 10%Local Designation + 10%Veteran status + 30% (but total limit of +40%)Safe useful life expectancy of 20 to 40 years: 80% .8Total Tree Value750,000Charles CowapMBA MRICS11FAAV 12. 2. Amenity Valuationof Trees &WoodlandsDR Helliwell Charles Cowap MBA MRICS FAAV 13. HelliwellUnit value per individual tree, 1.6.0825Size of crown, 200 sq m: score 8 (max)8Safe useful life expectancy, 40 100 yrs, (max score 4)3Importance in landscape: score 4 (max)4Presence of other trees: some (max score 2) 2Suitability to setting: score 4 (max) 4Form (thick stem): score 2 (max)2Total tree value (compared to a maximum Helliwell value 38,400of 57,600) Charles Cowap MBA MRICS13 FAAV 14. 3. Guide for PlantAppraisalCTLA Charles Cowap MBA MRICS FAAV 15. CTLA is not a method, but a bodyPublishing guidance on both Replacement Cost MethodsCharles CowapMBA MRICS FAAV 16. and Cost of Cure methodsValue may be optimised without full replacement (cf Macklin) Charles Cowap MBA MRICS FAAV 17. Charles CowapMBA MRICS17FAAV 18. SpeciesXConditionX Location Charles Cowap MBA MRICS18 FAAV 19. CTLAInstalled cost for 184 cm diameter tree @ 12.55/sq333,541cm (unit rate)Environmental adaptability: v suitable @ 100%1.0Growth characteristics: an average of scores for size, 1.0longevity and maintenance: 100, 50 and 70%respectivelyPest and disease susceptibility0.9 0.96Condition (90%) and Age / Asset Life (70%)0.6Location, based on site rating (100%) x frequency 0.4(65%) x dominance (65%) x placement (100%)Value 75,000 Charles Cowap MBA MRICS19 FAAV 20. One Tree 3 Values? 38,400 75,000 750,000Charles CowapMBA MRICS20FAAV 21. Helliwell: Visual Amenity Valuation CAVAT: Management of trees as public assetsrather than liabilities, value directly related topublic benefits CTLA: Depreciated Replacement Cost: assetvaluation amenity valueCharles CowapMBA MRICS21FAAV 22. COMPARISON A standard unit is weighted (multiplied) for various factors Nil value is possible Negative value is impossible without further deductions All are intrinsically capped Scope for substantially different figures No, or little, explicit recognition of land value itself See Lindsay and Lindsay No Basis of Valuation in terms easily reconciled with RedBook DRC approaches Do the assumptions really work with trees? Charles Cowap MBA MRICS FAAV 23. APPLICATION? Assessment of Worth (investment value) Compensation claims Damages Compensation on compulsory purchase Charles Cowap MBA MRICS FAAV 24. FORMING A VIEW The need to stand back and judge reasonableness Bryant and Macklin (2005) Cost of replacement (DRC): 190,000 Diminution of freehold value: 25,000 Cost of replacement with young whips: 44,500 With regard to: Likely behaviour of property owner Overall context of property market value Charles Cowap MBA MRICS FAAV 25. Renewable EnergyValuation RICS Information Paper Part of the Red Book suite Guidance on the valuation ofRenewable EnergyInstallations: Wholesale Own Use Domestic Electricity Heat Charles Cowap MBA MRICS FAAV 26. Scope Landlords Interest Owner-operators interest Separately identified asset As part of a larger asset, egrural estate or farmCharles CowapMBA MRICS FAAV 27. Adapting ValuationPrinciples andMethods Direct Comparison and theproblems of uniquedifferences Some use for wind turbines?Charles CowapMBA MRICS FAAV 28. Investment Method Assessment of Rent Levels Reversionary Aspects Layered Rents Choice of All Risk Yield(s?) Choice of capitalisationperiod A role for sensitivity analysis? Charles Cowap MBA MRICS FAAV 29. Layered RentsLayered Rent Different Risk Rates?What happens here? ReversionTerm Charles Cowap MBA MRICS FAAV 30. Profits Method Identify a separate rentalincome stream for separatecapitalisation? Arms length? Veracity of estimated orstated profits Charles Cowap MBA MRICS FAAV 31. DepreciatedReplacement Cost Extreme caution!! Depreciation rates? Relationship to market orother basis of value?Charles CowapMBA MRICS FAAV 32. Residual Method All the previous problems Plus Developers Profit Uncertainties over planning,grid connections etc Charles Cowap MBA MRICS FAAV 33. DCF Methods In practice widely undertakenfor larger developments Market Value?? Appraisal of worth to investor Would the market makesame assumptions? Charles Cowap MBA MRICS FAAV 34. BACK TO BASICS Purpose of Valuation Scope of investigations to be undertaken Assumptions and Special Assumptions Preliminary Information Capacity and assumed duration After uses, continuation, redevelopment Reporting Requirements Charles Cowap MBA MRICS FAAV 35. Clients PurposesValuation Methodology(in no particular order)Site owners Loan financeDiscounted cash flowSite developers Sale and purchase InvestmentSite occupiersOption agreements ProfitsFinance providers Development appraisalsComparableStatutory Asset distribution, e.g. probate, estateResidualreorganisation, succession, divorce, administrationDepreciatedand winding-up proceduresreplacement costTaxation, e.g. inheritance tax, capital gains tax,ratingBusiness reorganisationFinancial statementsCompensation for compulsory purchaseCompensation to other interests, e.g. tenants, etc.Charles CowapMBA MRICS FAAV 36. REPORTING Rationale for chosen method(s) Detailed consideration of instructions,assumptions, sources and reliability, extent ofindependent verification Sensitivity Commentary on Risk? Charles Cowap MBA MRICS FAAV 37. Some Common Issues Development Proposals fornew Sites Hope Value Operator Risk Complex lease or agreementterms Performance data Charles Cowap MBA MRICS FAAV 38. Some Common Issues Reporting Requirements Detailed instructions Market evidence Charles Cowap MBA MRICS FAAV 39. Investment Example10 ha site for 7 wind turbines on 28 year lease, 3 years expiredTurbines: 7 x 2.3 MW x 27% capacity. Output (Elec + ROC) =83/MWhBasic Rent: 7,000 + RPI for 14 years; 12,000 + RPI thereafterTurnover Rent: 5% of gross income for 14 years; 9% thereafterLease is taken from a larger site , rough grazing, of 100 ha in totalLet to a large well established generatorSee Estates Gazette 18 August 2012Charles CowapMBA MRICS FAAV 40. BASIC RENTTerm: 11 years remainingRent7,000YP for 11 yrs @ 8%7.139 49,973Reversion:Rent 12,000YP for 14 yrs @ 10% 7.367PV 1 in 11 yrs @ 10% 0.351 31,030 Charles Cowap MBA MRICS FAAV 41. TURNOVER RENTTurbines7Installed capacity2.3Capacity Factor 0.27/MWh 83Gross Income 3,160,617Term: Turnover 11 yrs remainingRent @ 5% of turnover 158,031YP for 11 yrs @ 10% 6.495 1,026,410ReversionRent @ 9% of turnover 284,456YP for 14 yrs @ 13% 6.303PV 1 in 11 yrs @ 13% 0.261 467,953Charles CowapMBA MRICS FAAV 42. REVERSION TO FARMLAND10 ha @ 2,000 20,000PV of 1 in 25 yrs @ 3% 0.4789,5601,584,926REMAINDER OF SITE, FH VP90 ha @ 2,000 180,000GRAND TOTAL 1,764,926 Charles Cowap MBA MRICS FAAV 43. SUMMARYBase RentTerm49,973 3%Reversion 31,030 2%81,003 5%Turnover RentTerm1,026,41065%Reversion 467,95330%1,494,36394%Reversion to Ag Use 9,560 1%Total 1,584,926 100% Charles Cowap MBA MRICS FAAV 44. WIDER VALUATION ISSUES ..... Worth and Value in Use v Market Value and Value in Exchange vFair Value Valuation and other appraisal methods Charles Cowap MBA MRICS FAAV 45. Find out more ..www.rics.orgRural e-newsFarmland Market, Autumn 2011 edn. Estates Gazette 18 August 2012 Charles Cowap MBA MRICS FAAV 46. New land managementRequirements are emergingNew marketsNew challenges toprofessional practiceCharles CowapMBA MRICS FAAV 47. Peats Story Charles Cowap MBA MRICS FAAV 48. Charles CowapMBA MRICS FAAV 49. Wimbleball Resr &Context: Exmoor example R Haddeo R ExeExmoor R Barle Replenishment Exebridge Pumping Pumping Approx 5 miles, Station lifting water from 120 to 240 mCO 2 AODCharles CowapMBA MRICS FAAV 50. Top 10 Business Opportunities1= Biodiversity Offsetting (BDO) andConservation Banking Estimated size of market 50 300 millionpa from housing, plus other sectors Brokerage, certification and registration Additional costs to builders/developersdeducted from land value1= Peatland Carbon Code and Carbon Credits Peat restoration for carbon storage Management schemes and incentives Certification and brokerage Charles Cowap MBA MRICS FAAV 51. 2. Woodfuel and Woodburning Stoves3. UK ecosystem knowledge economy4. Layered PES Different Environmental Servicesto different buyers Eg Charles CowapMBA MRICS FAAV 52. 6. Carbon sequestration7. Sustainability certification Opportunities forintermediaries8. Sustainable tourismCharles CowapMBA MRICS FAAV 53. 9= Global centre of excellence inESS certification9= Water re-use technology11 Reducing insurance risk through green infrastructure12 Environmental bondshttp://www.valuing-nature.net/opportunities-uk-business-protect-and-value-natures-services-report-published-today [accessed 19 July 2012]Charles Cowap MBA MRICS FAAV 54. NEW VALUATIONREQUIREMENTS AREEMERGING Charles Cowap MBA MRICS FAAV 55. Charles CowapMBA MRICS FAAV 56. Charles CowapMBA MRICS FAAV 57. SOME WORK HAS BEENDONE ALREADY Charles Cowap MBA MRICS FAAV 58. Charles CowapMBA MRICS FAAV 59. Charles CowapMBA MRICS FAAV 60. Charles CowapMBA MRICS FAAV 61. We face challenges to valuationECONOMIC APPRAISALCharles CowapMBA MRICS FAAV 62. Charles CowapMBA MRICS FAAV 63. And NowECOSYSTEM SERVICES Charles Cowap MBA MRICS FAAV 64. Charles CowapMBA MRICS FAAV 65. Charles CowapMBA MRICS FAAV 66. ECOSYSTEM SERVICES Charles Cowap MBA MRICS FAAV 67. From TEEB Foundations, Chapter 5APPROACHES FOR THEESTIMATION OF NATURESVALUES Charles Cowap MBA MRICS FAAV 68. Market Contingent CostAnalysisValuationMethods DeliberativeAvoidedValuation GroupReplacementCostValuation CostMethods Regime ShiftMethodsAnalysisInsurance ResilienceEcological Value ValueRisk Footprint Analysis JointMitigation AnalysisInput/Output Production Cost Analysis Function MethodCharles CowapMBA MRICS FAAV 69. ValuationWHERE DOES IT FIT? Charles Cowap MBA MRICS FAAV 70. Foresight Land UseFutures 2010 Charles Cowap MBA MRICS FAAV 71. Key Questions for RICS Is this anything to do with us? Our Public Interest Functionin this area? Our Member ServicesFunction in this area? Our Global Positioning? What, if anything, needs to bedone?Charles CowapMBA MRICS FAAV 72. Thinkpiece Royal Charter Promote the usefulness of the profession to public advantage New opportunities in landmanagement New ways of working indevelopment New points to reflect inconventional valuations New types of valuation Charles Cowap MBA MRICS FAAV 73. And we should offer: Our expertise In Land Tenure and itsrelationship to landmanagement anddevelopment Our experience of valuation inchallenging commercialmarkets Our expertise in brokerage Charles Cowap MBA MRICS FAAV 74. Keeping up with latest RICS DevelopmentsRenewables ValuationsCommunityFarm Infrastructure Business LevyTenancies Charles Cowap MBA MRICS FAAV 75. Web ClassesCharles CowapMBA MRICS FAAV 76. Questions? Charles Cowap MBA MRICS FAAV 77. Charles CowapMBA MRICS FAAV 78. Contact DetailsTranslating new knowledge for rural professional practice [email protected] 07947 706505Twitter:@charlescowapBlog: http://charlescowap.wordpress.com/Slideshare: http://www.slideshare.net/cdcowapCharles CowapMBA MRICS FAAV