Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

APC > Development Appraisals > Flashcards

Development Appraisals Flashcards

1
Q

What is RICS key legislation on Development Appraisals and what does it say?

A

RICS Valuation of Development Appraisals (2019)

  • Guide the valuer in the approach to development property valuations
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What is the difference between a residual and a development appraisal?

A

Residual: market assumptions to determine site value at moment in time (valuation date)

Development Appraisal: series of calculations to assess the viability/profitability of the scheme using developers inputs.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Is 15% contingency standard? Why did you use such a high contingency for Barnet?

A

Slightly high.
Site had a slope and no ground surveys had been done. used piled foundations with big costs. 15% reflected additional risk.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Why do you use different contingencies in each example?

A

Barnet- 15%
Bedford- 10%
Both were at a time of build cost inflation. However, in Barnet- site was on a slope.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What is profit erosion?

A

Period between completion and when property is let- will trigger developers profit.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What is the difference between CIL and S106?

A

CIL - a fee that has to be paid. calculated by multiplying the net uplift in floor space (sqm) by the CIL rate outlined in charging schedule

S106- specific site mitigation required- negotiated between developer and local authority such as new roads, affordable housing

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

For your development scheme in Bedford, what was the market uncertainty at time of valuation?

A

Ukraine war- inflation (energy prices, inflation/ potential mortgage rates – bank base rate was 1.25%, inflation was 9%.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What are some of the key inputs that can effect the viability of a project?

A
  • GDV
  • Construction Costs
  • Finance Costs
    -Contingency Rate
  • Professional Fees
  • Planning Costs (CIL/S106)
  • Developers Profit
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What were the adverse economic movements at time of Bedford valuation?

A

-War
-Inflation reached 9%
-bank base rate was 1.25%

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What is a sensitivity analysis and what is the purpose?

A

-series of calculations to determine risk by evaluating how changes to individual inputs would impact it.

-how movements in GDV/build costs would effect profit and land value

-clearly shows client what may happen if fluctuations.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What is the margin of error for surveyors, as detailed in your appraisal for Bedford?

A

10%, depending on facts

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Why was it a development appraisal if your output was determining the profitability of the scheme?

A

As I was using the developer’s inputs and was then testing profit by changing different inputs in the sensitivity analysis.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

How would you de-risk a scheme?

A

fixed build contract (no fluctuations)
ensure planning in place/no contamination

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

In your scheme in Romford, you note adding a 6-month development period. How do timescales affect a development period?

A

-affect finance- longer time frames and voids = more accrued interest= less profitable

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What was the purpose of:

A

Barnet Appraisal: to assess whether the development was viable to the developer targeting a 20% profit level.

Bedford: to determine land value after inputting various costs

Stanmore: determine land value

Romford: land value

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What is the residual method of valuation?

A

calculates land value. development appraisal can then test viability of scheme + establish residual land value

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What is a development appraisal?

A

calculations to establish viability or profitability of a project based on clients inputs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What costs contribute to the total development cost?

A

site prep, planning, build costs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What is development finance?

A

two main methods for funding your scheme:
1. Debt Finance
2. Equity Finance (selling shares in a company or joint venture/own money)

20
Q

Tell me about loans?

A

Loan to value ratio typically in the region of 60% , Senior debt is the first level of borrowing, Mezzanine funding is additional funding

21
Q

What is overage?

A

This is the arrangements made for the sharing of any extra receipts received over and above the profits originally expected as agreed in a pre-agreed formula

22
Q

Limitations of residual valuation and financial modelling

A

-Important of accurate information inputs
-Residual valuation does not consider timing of cash flow
-sensitive to minor adjustments
try to cross check with a comparable site valuation

23
Q

How many forms of sensitivity analysis are there

A

-Simple - analysis of key variable such as yield, GDV
-Scenario analysis - change scenarios for the development content/timings
-Monte Carlo simulation - using probability theory using software such as crystal ball

24
Q

What are typical professional fees?

A

10%-15% plus VAT of total construction costs

25
Q

How is finance calculated?

A

Choice of interest rate can include:

London Inter Bank Offer Rate was replaced by Sterling Overnight Index Average end 2021

Bank of England base rate
Rate at which the client can borrow money

26
Q

Three elements a developer needs finance?

A

Site purchase - Straight line basis

Total construction and associated costs - S - Curve

Holding costs to cover voids until the disposal scheme - compound interest on a straight line basis

27
Q

What is developers profit?

A

Percentage of GDV, if scheme low risk a lower return may be required

percentage of profit required has recently risen given riskier markets

28
Q

What is included when assessing the viability of a scheme?

A

GDV, Costs, land value, developers profit

29
Q

What are current finance rates being used?

A

7%

30
Q

What is phasing?

A

-spreading out letting out properties across development period
-property let during development period, others are completed and the timing and extent of additional income can be incorporated into cash flow

benefits?
enhanced financial flexibility

31
Q

What are some of the limitations of Argus Developer?

A

-sensitive to minor adjustments
-human error inputting
-training to use properly

32
Q

What are professional fees usually made up of?

A

architect, legal, agents, quantity surveyor, structural engineer

33
Q

What are the core principles of Valuation of Development Property (2019)

A

provide valuers with guidance on how to value development properties

34
Q

Why is an S curve used in the calculation of finance costs?

A

Reflects when money is actually been drawn down- calculates finance over the construction period.

35
Q

what is an overage?

A

sharing extra receipts received over profits.

36
Q

why use a sensitivity analysis

A

to test impact of changing external factors on the viability of a development.

37
Q

What is a development property?

A

an interest where redevelopment is required to achieve the highest and best use.

38
Q

Can a development appraisal produce residual land value as an output?

A

Yes- is used to test viability and therefore support purchase price.

39
Q

How would you model a single phased development vs a multi phased?

A

Single

40
Q

What are soft costs?

A

Costs that aren’t directly related to the construction but necessary for the build to happen successfully eg professional fees, surveys

41
Q

For your Bedford example- what did you do to inform your finance rate of 7%? was this debt rate? did you apply a credit rate and if not why not?

A

No- based on 100% debt finance.

42
Q

You said you assessed the scheme on viability? what do you mean by that?

A

Process of assessing if the scheme if financially viable- looking at whether value generated by a development is more than the cost of developing it.

43
Q

What would it mean if the profit erosion period was 0 months?

A

The property had a pre let in place.

44
Q

Who advised on the 6 months pre-construction period? or did you decide this yourself?

A

Site had not yet had planning approval only pre app advice. Estimated 6 months. Pre app advice was positive.

45
Q

What does ‘pre-app’ advice mean?

A

advice from planning to help identify any issues that could lead to application being rejected.
planning officers employed by council
work well for large complicated schemes
issues eg cables, telephone lines etc
delays start/planning app

APC (12 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions