Valuation of Investment Interests in Contaminated Properties in Romania
Theoretical Valuation Models
3 Theoretical Valuation Models 3.1 Introduction In this chapter, two valuation models will be produced. The idea of using two models came after the review of the literature where different practices for valuing contaminated properties have been discussed. There was no commonly agreed best practice model and of course, some might argue that the best practice model varies from country to country or from the perspective of each individual valuer; this could not be truer, that is why the idea of producing a new model to compare it with the previous approaches seemed like a rational thing to do. Not only that it sounds interesting and challenging but it will give a better understanding of brownfield valuation by analysing their contrast and similarities. The two models will use both use the full DCF approach, however the stigma will be quantified in different ways. The first model is the ‘comparable’ and will incorporate stigma as an additional premium to the all risks yield, considering the property as impaired, similar to the approaches discussed in the previous chapter; this approach is commonly used in valuations and therefore the emphasis will be put on the second model. This will have a different approach and will reduce the estimated value with a percentage resulted from a risk assessment of the contaminated property. So basically, the appreciation of its performance will be done in comparison with the first model. In order to create the models, a simple generalised scenario will further be described. A site was formerly used an industrial activity and currently hosts a number of buildings, accommodating commercial spaces (shops). The NEPA has just registered the site as contaminated in its national inventory for contaminated sites, after launching a programme which enforced landowners to carry out site investigations for their land if 26