Development 2

Question 1

Why do finance costs differ from developer to developer?

Answer 1

Risk factors – status of developer (independent or large developer), available equity, LTV ratio

Question 2

Name the 3 stages at which a developer may require finance?

Answer 2

a) Site purchase (includes purchaser’s costs)
b) Construction period (and associated cost)
c) Holding costs (to cover voids until disposal of the scheme – i.e., empty rates, service charge, interest, etc…)

Question 3

25. What is the S curve and when is it used?

Answer 3

• Principle that the payment of costs over the construction period adopts the profile of a ‘S’ shaped curve
• Used when calculating the finance required for the construction period of a development
• Assumption to halve the interest that would be borrowed over the construction period
• Purpose is the reflect more accurately when monies tend to be drawn down

Question 4

What is Senior Debt Funding?

Answer 4

FIRST level of debt funding, takes precedent over secondary/mezzanine funding

Question 5

What is Mezzanine Funding?

Answer 5

Additional funding for monies requires over the normal LTV lending

Question 6

What is forward funding?

Answer 6

An investor provides finance at a lower rate than achievable in the market, in exchange for a softer yield when the investor purchases the site

Question 7

What is a forward sale?

Answer 7

Purchase of a development at the end of a construction period, at a fixed price, based on today’s yield

Question 8

What are the advantages of using the DCF calculation over a residual valuation for a development site?

Answer 8

EXPLICIT – allows for inflation to be added
See the costs in the cash flow explicitly
Considers the time value of money – discounts back to today’s value

Question 9

What are the different types of planning consent?

Answer 9

Full planning consent
Outline Planning consent
Permitted development rights