18 Mar 2020

The UK commercial property market is facing unprecedented circumstances as a result of the COVID-19 outbreak and so valuation firms can no longer make reliable judgements on value.  This is known as “material value uncertainty”. Valuers are still able to produce valuations and make professional judgements but with less certainty than under normal market conditions. This applies to all valuations for all types of commercial property, whether owned by property funds, companies or other types of owner. 

Under FCA rules applying to funds investing in inherently illiquid assets, such as commercial property, funds with more than 20% of their portfolio subject to material valuation uncertainty are required to suspend subscriptions and redemptions in the interests of all investors. Although these rules are not due to come into force until September 2020, existing rules would require fund managers to consider suspending funds in circumstances like the ones they are facing at the current time. Fund managers are acting promptly to protect investors and there have been a number of such suspensions with more likely to occur.

AREF continues to work closely with the valuation community, and with the Investment Association (IA) in liaising with the FCA and with other industry bodies. We will also be liaising with all our fund members to ensure information is shared appropriately to help at this difficult time.

The precise wording of the material valuation uncertainty clause is set out below:

Material Valuation Uncertainty

The outbreak of the Novel Coronavirus (COVID-19), declared by the World Health Organisation as a “Global Pandemic” on the 11th March 2020, has impacted global financial markets. Travel restrictions have been implemented by many countries.

Market activity is being impacted in many sectors. As at the valuation date, we consider that we can attach less weight to previous market evidence for comparison purposes, to inform opinions of value.  Indeed, the current response to COVID-19 means that we are faced with an unprecedented set of circumstances on which to base a judgement.

Our valuation(s) is / are therefore reported on the basis of ‘material valuation uncertainty’ as per VPS 3 and VPGA 10 of the RICS Red Book Global. Consequently, less certainty – and a higher degree of caution – should be attached to our valuation than would normally be the case. Given the unknown future impact that COVID-19 might have on the real estate market, we recommend that you keep the valuation of [this property] under frequent review.

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Paul Richards

Paul Richards

Managing Director, AREF

Paul is the Managing Director of AREF.

Before joining AREF, Paul was Head of the European Real Estate Boutique within Mercer’s investment consulting business for almost 10 years, previously he was Head of Indirect Real Estate Investment and Global Managed Accounts at LaSalle Investment Management, where he was responsible for managing global portfolios of unlisted real estate funds for clients from Europe and Asia Pacific.

He has over 25 years of real estate experience in investment, corporate finance and research, and has advised investors, occupiers and venture capital companies on property portfolio strategy and on financial structuring, including PFI, senior and mezzanine debt and joint venture arrangements. His employers have included LaSalle Investment Management, Cushman & Wakefield and Henderson Investors.

Before coming into the world of real estate, Paul worked in marketing and market research. He originally studied Physiological Sciences at Lincoln College, Oxford and has a Master of Science in Real Estate from City University Business School, London, now Cass Business School.