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PROPERTY342 > 4. Feasibility Studies > Flashcards

4. Feasibility Studies Flashcards

1
Q

What is feasibility judgement?

A

Checks whether the development is worth doing, usually based on financials

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2
Q

What are the two measurement of financial criteria options?

A

On completion or over a period of time

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3
Q

What profit is generally required for the decision to go ahead?

A

25% TPC

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4
Q

What profit is generally required for the decision to go ahead?

A

25% TPC

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5
Q

What are the 5 categories of cost?

A

Land
Design
Construction
Development
Financing

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6
Q

What are the 2 types of revenue?

A

Developments being leased - NLA, outgoings, carparks
Developments being sold - sum of each unit

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7
Q

How are office NLAs measured?

A

To inside faces of external walls/core structure at 1.5m height

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8
Q

What 4 things are included in NLA?

A

Columns, lift lobbies, toilets, tea making areas

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9
Q

What 7 things are excluded in NLA?

A

Fire egress stairs, lifts, electrical cupboards, vertical ducts, escalators, firehouse reels with 1.5m height, ground floor entrance lobbies/lift access

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10
Q

What is NLA for shopping centres?

A

Centre of tenancy walls

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11
Q

What is NLA for industrial?

A

GFA

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12
Q

How is net:gross ratio affected by structure?

A

Thinner structures have higher ratios

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13
Q

What is developer/tenant costs for offices?

A

Developer provides basic services and tenant pays fitout

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14
Q

What is developer/tenant costs for supermarkets?

A

Developer provides building shell and tenant (basic fit for purpose and fire exits) and a certain amount of power, tenant pays fitouts and excess power required

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15
Q

What is developer/tenant costs for industrial?

A

Developer provides shell fit for purpose, everything else paid by tenant

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16
Q

What is the end sale value for tenanted and outright sold buildings?

A

Tenanted = net revenue / cap rate
Sold outright = total sum of components

17
Q

How do you calculate development profit?

A

Sale value - cost
(/cost to get as % of TPC)

18
Q

What has the biggest influence on development profit?

A

Risk profile;
Low risk - 20%
Most - 25%
High risk - 25%
Premium developments - 30-40%

19
Q

When is development profit realised?

A

When all sales are complete

20
Q

How do you calculate return percentage?

A

1 year income after costs / total project costs

21
Q

What is the investor’s cost and yield?

A

Investment cost = sale value
Yield = revenue / sale value

22
Q

When are revenues maximised?

A

When all tenant needs are met

23
Q

When are cap rates smallest?

A

When investors pay highly for the asset

24
Q

What is a limitation and alternative to sale on completion?

A

Limitation - some projects need more time to ramp up/reach full potential or realise benefit from refurbishment
Alternative - measure long term investment return (IRR)

25
Q

Why does IRR measurement give a better reflection of investment worth?

A

Because it also accounts for inflation and rent reviews incorporating capital gain

26
Q

How does the trend in total return change over time?

A

Income return always positive
Capital return changes with market cycle
Total return depends on proportions

27
Q

When was Auckland CBD office property total returns negative?

A

2008-2010

28
Q

What is the IRR?

A

The interest rate per annum that would result in NPV of 0 (breakeven)

29
Q

Why is IRR more equitable than initial yield?

A

Because it reflects the impact of inflation

30
Q

What IRR is required for an investment to be considered worthwhile?

A

Needs to be 4-6% above commercial interest rates

31
Q

How do you calculate PV?

A

FV / (1+i)^n

32
Q

What is the NPV?

A

Present value of all future cash flows

33
Q

When is the NPV positive?

A

Wen the interest rate used is above the target return on capital

34
Q

What percentage of TPC should the developer generally have as equity?

A

Around 30%

35
Q

What are the 3 types of financing?

A

Senior debt (from bank - 1st mortgage) - least expensive
Mezzanine debt (from financier - 2nd mortgage) - riskier so higher interest rate and may have other fees
Joint venture with financier - financier provides most capital and takes a share of profits

36
Q

What are the 8 things on the bank finance checklist?

A
  1. Approve building contract, contractor, consultants, programme and cash flow
  2. Bank appoints QS and valuer to check
  3. May require 10% minimum on contingency
  4. Tripartite deed - builder, developer, bank (bank completes if developer defaults)
  5. Developer uses own funds before bank
  6. No side agreements affecting pre-sale values
  7. Loan max 80% of sales
  8. Guarantees - personal, joint, company, key person
37
Q

What are 4 common mistakes for new developers seeking finance?

A
  1. Low equity position and underestimated costs
  2. Does everything themselves which increases risk
  3. No true fixed price contracts
  4. Not using site for maximum value

PROPERTY342 (21 decks)

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