Creating Value In Property: Case Study Example
CHANGE OF USE STRATEGY: OFFICE TO MEDICAL
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This example highlights how we use our expertise in town planning, construction, and valuation to unlock a property's hidden potential through a 'change of use' strategy. By understanding local council rules, we identify opportunities others might overlook.
We combine our planning and valuation knowledge to ensure the strategy adds value and work closely with our in-house builder to confirm feasibility and manage costs effectively.
Our integrated approach demonstrates how our team creates value and helps build wealth through smart property strategies.
EXISTING OFFICE
BUILDING AREA
RENTAL PER ANNUM
CAPITALISATION RATE
VALUATION
500 square metres
$150,000 or $300/sqm
7.50%
$2,000,000
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VALUATION CALCULATION
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When a property is leased with a tenant paying rent, the industry valuation approach is the Income Capitalisation Approach.
This approach involves dividing the income by the capitalisation rate (or desired rate of return). For example, the existing office valuation of $2,000,000 is calculated as:
$150,000 / 7.50% = $2,000,000
The capitalisation rate is determined through our deep and up-to-date understanding of market conditions based on transacted sales evidence.
NEW MEDICAL CENTRE
BUILDING AREA
RENTAL PER ANNUM
CAPITALISATION RATE
VALUATION
LEASING COSTS
CONVERSION COST
500 square metres
$187,500 or $375/sqm
6.50%
$2,900,000 (rounded)
$25,000
KEY TAKEAWAYS & CRITICAL UNDERSTANDING
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In this example, an existing office has been converted to a medical centre. Through this conversion, the property went from a valuation of $2m to $2.9m (rounded) at a cost of $350,000. This means the property owner has generated a $550,000 or 27.5% uplift in value.
For the strategy to succeed, it is critical to understand that medical centres typically rent for more than the standard suburban offices and these investments are more sought after and therefore investors are willing to pay more and receive a lower rental return return in this case being 6.50%.
In other words, for this property, it is worth more as a medical centre.
Another critical aspect to the success of the strategy is utilising our highly skilled asset management team, who are able to skillfully navigate the complexities involved in exiting the existing office tenant and successfully re-leasing the property as a medical centre.
A thorough understanding of leases, legalities, and broader market dynamics is essential for effectively implementing this strategy and ensuring its long-term success.
Using our vertically integrated town planning, valuation, asset management and construction teams, we are able to determine that a conversion is possible, the valuation metrics are favourable and construction costs are feasible to create an uplift in valuation and therefore equity and wealth in the property.
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VALUATION NEW MEDICAL CENTRE
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With our expert team of valuers, who have valued countless medical centres in the past, we are able to quickly determine:
What is the current market capitalisation rate for a medical investment? In this instance, it is 6.50%. This is determined by using our deep and comprehensive understanding of the current market conditions.
What would a medical centre typically rent for in the current market? Again this is determined through leveraging our extensive industry network and deep understanding of the market.
Understanding the new rent and capitalisation rate, what would the likely new value be? Our expert team completes an in-house valuation with best in class valuation practices and standards.
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UNDERSTANDING WHAT USES ARE POSSIBLE
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It is key to have a clear understanding of what uses are allowed for the existing building by the local council.
With our expert town planning team, we are able to quickly assess what is possible and what it will take to have the conversion approved by local council.
Understanding the council and how they operate is also critical as often approvals can be delayed if the strict application processes are not adhered to. Our deep understanding of council operations enables us to expedite approval processes resulting in faster turn around times to create value in the property.
results
$325,000 ($650/sqm)
VALUATION UPLIFT
COSTS TO CONVERT
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INITIAL VALUATION
VALUE UPLIFT $
VALUE UPLIFT %
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=
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CONSTRUCTION COSTS TO CONVERT
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Having an in-house builder is advantageous for a number of reasons including;
We are able to assess costs to complete the conversion upfront, ensuring optimal costs spent.
We are able to control the cost and timing with our expert project management team, ensuring optimal feasibility.
We can control timing constraints and delivery outcomes and have constant internal communication on the development progress.
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$900,000
$350,000
$2,000,000
$550,000
27.5%