Rural Jigsaw: conventional and unconventional valuations of amenity trees, renewable energy and new challenges for land agents
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This document discusses challenges in valuing trees and renewable energy assets. It provides an overview of several methods for valuing trees, including CAVAT, Helliwell, and CTLA. These methods use factors like tree size and condition to determine a value. The document also discusses challenges in valuing renewable energy installations using methods like investment, profits, and discounted cash flow. New requirements are emerging for valuing ecosystem services, which presents challenges for valuation professionals.
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Rural Jigsaw: conventional and unconventional valuations of amenity trees, renewable energy and new challenges for land agents
- 1. A Rural Jigsaw: Traditional and new challenges to valuation and estate management: trees, energy and ecosystem services Charles Cowap Llandrindod Wells 4 December 2012 Charles Cowap MBA MRICS FAAV
- 2. Valuation of trees for amenity and related non-timber uses ā¢ RICS Guidance Note ā¢ Part of the Red Book suite ā¢ Guidance on the valuation of: ā Trees ā Groups of trees ā As part of property ā As separate asset ā¢ Scope: UK ā¢ Interest: worldwide! Charles Cowap MBA MRICS FAAV
- 3. The Red Book ā¢ RICS Valuation Standards ā¢ Suite of: ā Practice Statements ā Guidance Notes ā Information Papers Charles Cowap MBA MRICS FAAV
- 4. Why? ā¢ The need to value trees for various requirements ā¢ Emergence of various methods ā¢ Need for guidance on their relationship to Red Book concepts like Market Value Charles Cowap MBA MRICS FAAV
- 5. How? Valuation Basics: ā¢ Methods ā¢ Skills and knowledge ā¢ Terms of engagement ā¢ Specific information which may be needed ā¢ Valuation Basis ā Market Value ā Worth ā Fair Value ā Existing Use Value Charles Cowap MBA MRICS FAAV
- 6. How? The Facts ā¢ Site and legal interest ā¢ Statutory designation and other forms of protection ā¢ Current and proposed site uses ā¢ Health and condition, signs of stress ā¢ Liability issues ā¢ Assumptions and special assumptions Charles Cowap MBA MRICS FAAV
- 7. METHODS Charles Cowap MBA MRICS FAAV
- 8. Tree valuation is big news Big figures are touted to end the chain saw massacre Charles Cowap MBA MRICS FAAV
- 9. 1. CAVAT Capital Asset Value for Amenity Trees Chris Neilan Charles Cowap MBA MRICS FAAV
- 10. CAVAT Capital Asset Value for Amenity Trees ā¢ Basic value: unit value x size ā¢ Community Tree Index Value: population, use, accessibility ā¢ Functional value ā¢ Adjusted value/amenity factors (+/-) ā¢ Full value/safe life expectancy Charles Cowap MBA MRICS10 FAAV
- 11. How CAVAT (probably) worked: Tree Diameter of 184 cm x Unit Value Factor of Ā£13.18 Ā£350,285 Community Tree Index Factor based on pop density of 2 84.4/ha and relative accessibility of 200% x 100% Functionality based on crown size and condition of 1 100% Amenity and appropriateness based on 1.4 Townscape 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% .8 Total Tree Value Ā£750,000 Charles Cowap MBA MRICS11 FAAV
- 12. 2. Amenity Valuation of Trees & Woodlands DR Helliwell Charles Cowap MBA MRICS FAAV
- 13. Helliwell Unit value per individual tree, 1.6.08 Ā£25 Size of crown, 200 sq m: score 8 (max) 8 Safe useful life expectancy, 40 ā 100 yrs, (max score 4) 3 Importance in landscape: score 4 (max) 4 Presence of other trees: some (max score 2) 2 Suitability to setting: score 4 (max) 4 Form (thick stem): score 2 (max) 2 Total tree value (compared to a maximum Helliwell value Ā£38,400 of Ā£57,600) Charles Cowap MBA MRICS13 FAAV
- 14. 3. Guide for Plant Appraisal CTLA Charles Cowap MBA MRICS FAAV
- 15. CTLA is not a method, but a body Publishing guidance on both Replacement Cost Methodsā¦ Charles Cowap MBA MRICS FAAV
- 16. ā¦and Cost of Cure methods Value may be optimised without full replacement (cf Macklin) Charles Cowap MBA MRICS FAAV
- 17. Charles Cowap MBA MRICS17 FAAV
- 18. Species X Condition X Location Charles Cowap MBA MRICS18 FAAV
- 19. CTLA Installed cost for 184 cm diameter tree @ Ā£12.55/sq Ā£333,541 cm (unit rate) Environmental adaptability: v suitable @ 100% 1.0 Growth characteristics: an average of scores for size, 1.0 longevity and maintenance: 100, 50 and 70% respectively Pest and disease susceptibility 0.9 0.96 Condition (90%) and Age / Asset Life (70%) 0.6 Location, based on site rating (100%) x frequency 0.4 (65%) x dominance (65%) x placement (100%) Value Ā£75,000 Charles Cowap MBA MRICS19 FAAV
- 20. One Tree ā¢ 3 Values? ā¢ Ā£38,400 ā¢ Ā£75,000 ā¢ Ā£750,000 Charles Cowap MBA MRICS20 FAAV
- 21. ā¢ Helliwell: Visual Amenity Valuation ā¢ CAVAT: Management of trees as public assets rather than liabilities, value directly related to public benefits ā¢ CTLA: Depreciated Replacement Cost: asset valuation ā amenity value Charles Cowap MBA MRICS21 FAAV
- 22. COMPARISON ā¢ A standard unit is weighted (multiplied) for various factors ā¢ Nil value is possible ā¢ Negative value is impossible without further deductions ā¢ All are intrinsically capped ā¢ Scope for substantially different figures ā¢ No, or little, explicit recognition of land value itself ā See Lindsay and Lindsay ā¢ No Basis of Valuation in terms easily reconciled with Red Book ā¢ DRC approaches ā Do the assumptions really work with trees? Charles Cowap MBA MRICS FAAV
- 23. APPLICATION? ā¢ Assessment of Worth (investment value) ā¢ Compensation claims ā Damages ā Compensation on compulsory purchase Charles Cowap MBA MRICS FAAV
- 24. FORMING A VIEW ā¢ The need to āstand backā and judge āreasonablenessā ā¢ Bryant and Macklin (2005) ā Cost of replacement (DRC): Ā£190,000 ā Diminution of freehold value: Ā£25,000 ā Cost of replacement with young whips: Ā£44,500 ā¢ With regard to: ā Likely behaviour of property owner ā Overall context of property market value Charles Cowap MBA MRICS FAAV
- 25. Renewable Energy Valuation ā¢ RICS Information Paper ā¢ Part of the Red Book suite ā¢ Guidance on the valuation of Renewable Energy Installations: ā Wholesale ā Own Use ā Domestic ā Electricity ā Heat Charles Cowap MBA MRICS FAAV
- 26. Scope ā¢ Landlordās Interest ā¢ Owner-operatorās interest ā¢ Separately identified asset ā¢ As part of a larger asset, eg rural estate or farm Charles Cowap MBA MRICS FAAV
- 27. Adapting Valuation Principles and Methods ā¢ Direct Comparison and the problems of unique differences ā¢ Some use for wind turbines? Charles Cowap MBA MRICS FAAV
- 28. Investment Method ā¢ Assessment of Rent Levels ā¢ Reversionary Aspects ā¢ Layered Rents ā¢ Choice of All Risk Yield(s?) ā¢ Choice of capitalisation period ā¢ A role for sensitivity analysis? Charles Cowap MBA MRICS FAAV
- 29. Layered Rents Layered Rent Different Risk Rates? What happens here? Reversion Term Charles Cowap MBA MRICS FAAV
- 30. Profits Method ā¢ Identify a separate rental income stream for separate capitalisation? ā¢ Armsā length? ā¢ Veracity of estimated or stated profits Charles Cowap MBA MRICS FAAV
- 31. Depreciated Replacement Cost ā¢ Extreme caution!! ā¢ Depreciation rates? ā¢ Relationship to market or other basis of value? Charles Cowap MBA MRICS FAAV
- 32. Residual Method ā¢ All the previous problems ā¦ ā¢ Plus Developerās Profit ā¢ Uncertainties over planning, grid connections etc Charles Cowap MBA MRICS FAAV
- 33. DCF Methods ā¢ In practice widely undertaken for larger developments ā¢ Market Value?? ā¢ Appraisal of worth to investor ā¢ Would the market make same assumptions? Charles Cowap MBA MRICS FAAV
- 34. BACK TO BASICS ā¢ Purpose of Valuation ā¢ Scope of investigations to be undertaken ā¢ Assumptions and Special Assumptions ā¢ Preliminary Information ā¢ Capacity and assumed duration ā¢ After uses, continuation, redevelopment ā¢ Reporting Requirements Charles Cowap MBA MRICS FAAV
- 35. Clients Purposes Valuation Methodology (in no particular order) Site owners Loan finance Discounted cash flow Site developers Sale and purchase Investment Site occupiers Option agreements Profits Finance providers Development appraisals Comparable Statutory Asset distribution, e.g. probate, estate Residual reorganisation, succession, divorce, administration Depreciated and winding-up procedures replacement cost Taxation, e.g. inheritance tax, capital gains tax, rating Business reorganisation Financial statements Compensation for compulsory purchase Compensation to other interests, e.g. tenants, etc. Charles Cowap MBA MRICS FAAV
- 36. REPORTING ā¢ Rationale for chosen method(s) ā¢ Detailed consideration of instructions, assumptions, sources and reliability, extent of independent verification ā¢ Sensitivity ā¢ Commentary on Risk? Charles Cowap MBA MRICS FAAV
- 37. Some Common Issues ā¢ Development Proposals for new Sites ā¢ Hope Value ā¢ Operator Risk ā¢ Complex lease or agreement terms ā¢ Performance data Charles Cowap MBA MRICS FAAV
- 38. Some Common Issues ā¢ Reporting Requirements ā¢ Detailed instructions ā¢ Market evidence Charles Cowap MBA MRICS FAAV
- 39. Investment Example 10 ha site for 7 wind turbines on 28 year lease, 3 years expired Turbines: 7 x 2.3 MW x 27% capacity. Output (Elec + ROC) = Ā£83/MWh Basic Rent: Ā£7,000 + RPI for 14 years; Ā£12,000 + RPI thereafter Turnover Rent: 5% of gross income for 14 years; 9% thereafter Lease is taken from a larger site , rough grazing, of 100 ha in total Let to a large well established generator See Estates Gazette 18 August 2012 Charles Cowap MBA MRICS FAAV
- 40. BASIC RENT Term: 11 years remaining Rent 7,000 YP for 11 yrs @ 8% 7.139 49,973 Reversion: Rent 12,000 YP for 14 yrs @ 10% 7.367 PV Ā£1 in 11 yrs @ 10% 0.351 31,030 Charles Cowap MBA MRICS FAAV
- 41. TURNOVER RENT Turbines 7 Installed capacity 2.3 Capacity Factor 0.27 Ā£/MWh 83 Gross Income 3,160,617 Term: Turnover 11 yrs remaining Rent @ 5% of turnover 158,031 YP for 11 yrs @ 10% 6.495 1,026,410 Reversion Rent @ 9% of turnover 284,456 YP for 14 yrs @ 13% 6.303 PV Ā£1 in 11 yrs @ 13% 0.261 467,953 Charles Cowap MBA MRICS FAAV
- 42. REVERSION TO FARMLAND 10 ha @ Ā£2,000 20,000 PV of Ā£1 in 25 yrs @ 3% 0.478 9,560 Ā£1,584,926 REMAINDER OF SITE, FH VP 90 ha @ Ā£2,000 Ā£180,000 GRAND TOTAL Ā£1,764,926 Charles Cowap MBA MRICS FAAV
- 43. SUMMARY Base Rent Term 49,973 3% Reversion 31,030 2% 81,003 5% Turnover Rent Term 1,026,410 65% Reversion 467,953 30% 1,494,363 94% Reversion to Ag Use 9,560 1% Total 1,584,926 100% Charles Cowap MBA MRICS FAAV
- 44. WIDER VALUATION ISSUES ..... ā¢ Worth and Value in Use v Market Value and Value in Exchange v Fair Value ā¢ Valuation and other appraisal methods Charles Cowap MBA MRICS FAAV
- 45. Find out more ā¦.. www.rics.org Rural e-news Farmland Market, Autumn 2011 edn. Estates Gazette 18 August 2012 Charles Cowap MBA MRICS FAAV
- 46. New land management Requirements are emerging New markets New challenges to professional practice Charles Cowap MBA MRICS FAAV
- 47. Peatās Story Charles Cowap MBA MRICS FAAV
- 48. Charles Cowap MBA MRICS FAAV
- 49. Wimbleball Resr & Context: Exmoor example R Haddeo R Exe Exmoor R Barle Replenishment Exebridge Pumping Pumping Approx 5 miles, Station lifting water from 120 to 240 m CO 2 AOD Charles Cowap MBA MRICS FAAV
- 50. Top 10 Business Opportunities 1= Biodiversity Offsetting (BDO) and Conservation Banking ā¢ Estimated size of market Ā£50 ā 300 million pa from housing, plus other sectors ā¢ Brokerage, certification and registration ā¢ Additional costs to builders/developers deducted from land value 1= Peatland Carbon Code and Carbon Credits ā¢ Peat restoration for carbon storage ā¢ Management schemes and incentives ā¢ Certification and brokerage Charles Cowap MBA MRICS FAAV
- 51. 2. Woodfuel and Woodburning Stoves 3. UK ecosystem knowledge economy 4. Layered PES ā Different Environmental Services to different buyers ā Eg ļ Charles Cowap MBA MRICS FAAV
- 52. 6. Carbon sequestration 7. Sustainability certification ā Opportunities for intermediaries 8. Sustainable tourism Charles Cowap MBA MRICS FAAV
- 53. 9= Global centre of excellence in ESS certification 9= Water re-use technology 11 Reducing insurance risk through green infrastructure 12 Environmental bonds http://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 VALUATION REQUIREMENTS ARE EMERGING Charles Cowap MBA MRICS FAAV
- 55. Charles Cowap MBA MRICS FAAV
- 56. Charles Cowap MBA MRICS FAAV
- 57. SOME WORK HAS BEEN DONE ALREADY Charles Cowap MBA MRICS FAAV
- 58. Charles Cowap MBA MRICS FAAV
- 59. Charles Cowap MBA MRICS FAAV
- 60. Charles Cowap MBA MRICS FAAV
- 61. We face challenges to valuation ECONOMIC APPRAISAL Charles Cowap MBA MRICS FAAV
- 62. Charles Cowap MBA MRICS FAAV
- 63. And Now ECOSYSTEM SERVICES Charles Cowap MBA MRICS FAAV
- 64. Charles Cowap MBA MRICS FAAV
- 65. Charles Cowap MBA MRICS FAAV
- 66. ECOSYSTEM SERVICES Charles Cowap MBA MRICS FAAV
- 67. From TEEB Foundations, Chapter 5 APPROACHES FOR THE ESTIMATION OF NATUREāS VALUES Charles Cowap MBA MRICS FAAV
- 68. Market Contingent Cost Analysis Valuation Methods Deliberative Avoided Valuation Group Replacement Cost Valuation Cost Methods Regime Shift Methods Analysis Insurance Resilience Ecological Value Value Risk Footprint Analysis Joint Mitigation Analysis Input/Output Production Cost Analysis Function Method Charles Cowap MBA MRICS FAAV
- 69. Valuation WHERE DOES IT FIT? Charles Cowap MBA MRICS FAAV
- 70. Foresight Land Use Futures 2010 Charles Cowap MBA MRICS FAAV
- 71. Key Questions for RICS ā¢ Is this anything to do with us? ā¢ Our Public Interest Function in this area? ā¢ Our Member Services Function in this area? ā¢ Our Global Positioning? ā¢ What, if anything, needs to be done? Charles Cowap MBA MRICS FAAV
- 72. Thinkpiece ā¢ Royal Charter ā Promote the usefulness of the profession to public advantage ā¢ New opportunities in land management ā¢ New ways of working in development ā¢ New points to reflect in conventional valuations ā¢ New types of valuation Charles Cowap MBA MRICS FAAV
- 73. And we should offer: ā¢ Our expertise ā¢ In Land Tenure and its relationship to land management and development ā¢ Our experience of valuation in challenging commercial markets ā¢ Our expertise in brokerage Charles Cowap MBA MRICS FAAV
- 74. Keeping up with latest RICS Developments Renewables Valuations Community Farm Infrastructure Business Levy Tenancies Charles Cowap MBA MRICS FAAV
- 75. Web Classes Charles Cowap MBA MRICS FAAV
- 76. Questions? Charles Cowap MBA MRICS FAAV
- 77. Charles Cowap MBA MRICS FAAV
- 78. Contact Details Translating new knowledge for rural professional practice ļø cdcowap@gmail.com ļ© 07947 706505 Twitter: @charlescowap Blog: http://charlescowap.wordpress.com/ Slideshare: http://www.slideshare.net/cdcowap Charles Cowap MBA MRICS FAAV
Editor's Notes
- Introduce concept of RICS Guidance Note and stress relationship to Red BookCoverage of valuation of trees and groups of trees.Although the scope of the published guidance is the UK, it has attracted interest from abroad, notably USA.
- Reminder of what the Red Book is
- RICS has prepared new guidance note because trees have to be considered in relation to property value in a variety of situations.Against this background, various methods have emerged in recent years.But the relationship between these methods and long-established principles and methods of property valuation is far from clear. The Guidance Note therefore seeks to bridge this gap.
- Guidance note addresses some basic points that apply to all property valuations, as listed.In particular, the need to establish the purpose and BASIS of valuation.Also note the comments in the guidance on skills and knowledge. Red Book PS 1.5 requires valuer to have the necessary skills and knowledge.These would cover knowledge of tree spp, habitat preferences, growth characteristics, timber characteristics, longevity, structural integrity, landscape character, industry standard methods of measurement.Terms of engagement will also have to be considered carefully where trees are a significant component for consideration in the valuation, including for example: identify the trees concerned, purpose of valuation, information to be made available to the valuer, specific research which the valuer may need to undertake, assumptions and special assumptions which might be applicable ā see PS 2.1 and 2.2 for special assumptions.Reminder of the need to agree acceptable basis of valuation.
- Three methods have come into prominence in UK recently.Will be explained by reference to a particular tree valuation which had caught the headlines at the start of this project.
- CAVAT was the method used to arrive at the high valuation reported for the Berkeley Square plane tree.It has been developed by members of the London Tree Officers Association and its main focus has been on asset management considerations and in particular claims which arise against local authorities when trees are blamed for subsidence in nearby buildings. There is some evidence from practice that CAVAT is being accepted by insurers as the basis for settlements in such cases.
- This is how a CAVAT valuation is built up. The following example should make it clearer.
- Published guidance from CAVAT shows how these factors are built up.The Berkeley Square plane tree is large, so its initial value is large. Essentially, this is a replacement cost, factored for the size of the existing tree.Community Tree Index reflects population density and accessibility ā both factors are high for this central London site.Functionality is based on crown size and condition, both good in this case.Various āadd onsā follow for amenity value. Although the total available for each of the three points is 50%, the maximum add on allowed is 40%.As an older tree, the Plane has a limited life expectancy and this has reduced the value slightly, to 80%.Hence the total valuation of Ā£750,000.CAVAT has been criticised for not adequately reflecting depreciation.
- Helliwell method was one of first to be used in UK.
- Taking the same tree, Helliwell would look like this.Again it starts with a unit value per individual tree and adjustments are made.The adjustments are all on a fixed scale. In this case, the maximum of the scale has been used for each factor except life expectancy ā 3 rather than 4.The maximum Helliwell valuation would therefore be Ā£57,600, but in this case is Ā£38,400.Much lower than CAVAT ā but are they valuing the same thing in our terms?
- 3rd and final method: CTLA an American based organisation which leads the publication of plant appraisal methodologies. The US Guidance has recently been adapted/developed for use in UK conditions.
- CTLA publishes guidance on a range of methods, but Replacement Cost Methods are the ones which have crossed the Atlantic.
- CTLA also considers a number of other approaches, eg cost of cure, or remedy.
- Adam Hollis has prepared guidance notes on the use of DRC for amenity tree valuation, adapting the US guidance to UK conditions.
- The basic approach is Species x Condition x Location
- The DRC approach to the Plane Tree would have looked like this.Adjustments are then made for environmental suitability, growth characteristics and pest and disease susceptibility.Further adjustements are made for condition and age, site, frequency, dominance and placement.Total: Ā£75,000 ā again quite different from the previous valuations!
- This shows the different emphases of the methods. CAVAT specifically excludes any measure of exteranl liability associated with a tree, which would need to be a āspecial assumptionā in Red Book terms.
- Standard unit is a cost for two of the methods and a simple unit for the other (Helliwell).Lindsay v Lindsay: LT case. Claim included separate items for land value and the trees upon it (Helliwell). LT considered that the figures used for the land value already reflected the present of trees and rejected the separate claim for their value. Underlines the importance of correct identification and categorisation of assets under consideration, and importance of handling and analysing transactional evidence.
- Leads to question of circumstances in which these methods might be worth considering.Assessment of Worth is basically worth to the individual client and, provided the client understands the basis on which the valuation has been prepared, one or other of these methods may be helpful.The methods have also been used in compensation claims, both general and on CP&C, successfully despite Lindsay v Lindsay.
- Bryant and Macklin: CA case.Wilful destruction of trees by neighbour.Reasonableness:āThe judge must stand back, when he has done his arithmetic, and ask himself whether the figure achieved by his findings is fair both to the plaintiff and to the defendantsā (Chadwick LJ quoting Russell LJ in Farmer Giles Ltd v Wessex Water Authority and another.Ā£44,500 awarded. Per Chadwick LJāThat represents less than ten percent of the value of the property in question. In my view it is impossible to say that a reasonable person with ample funds at his disposal would not think it reasonable to lay out that sum in restoring an amenity to his home; provided, of course, that the expenditure would lead to a benefit worth having. Mr Gilbert thought it would; and the judge made no finding that it would not. It is important to keep in mind that Mr and Mrs Bryant want to continue living in their property. They do not want to sell up and move on. I find it difficult to accept that they would not think that the prospect of restoring trees to their boundaries ā even if that would take some time ā was not a benefit worth having. The alternative ā to do nothing ā would, I think, be rightly rejected as unacceptable.ā Emphasising the need to stand back, have regard to the value of trees in the context of the property as a whole and with regard to the likely actions and motivations of real owners.