Dev Ap Level 2 - Residual Valuation Flashcards
Talk me through your level 2 residual valuation example?
I was instructed to value the property for loan security purposes.
the property was a office building and had planning permission for redevelopment to provide 9 residential flats over lower ground and six upper floors
I carried out due diligence and inspected the property, which was entirely stripped out
I undertook a residual appraisal for the consented scheme
I complied comparable evidence of similar nearby developments to arrive at a gross development value
I deducted the costs associated with the development including construction, fees, profit and costs of sale and finance.
I reported the residual market value to the client as well as the market value on the special assumption of completion of the units.
What finance rate did you assume?
6% finance
What debt did you assume?
100% debt
Why did you assume 100% debt?
because each borrowers rates will be different, assuming 100% debt is market practice.
What time scales did you assume?
21 months to complete and 6 months most construction for selling the unit
What developers profit did you assume?
17.5%
Why did you assume a developers profit of 17.5%?
Market norm is between 15% - 20%, 17.5% was appropriate as It was also a complex build location in central London so the profit reflected this risk.
What build costs did you assume?
provided build costs by the client which reflected £350 psf these were slightly higher than market norm due to complexity of build location.
What professional fees did you assume?
10%
Talk me through your sensitivity analysis
I varied the GDV and the build costs to see how this affected site value.
Why do you carry out a sensitivity analysis?
Helps to manage risks for effectively, for example values of flats are beginning to come down due to rise in interest rates therefore having an effect on GDV as well as build costs and finance rates.
What marketing costs did you assume?
Sales fee of 1.75% and legal fee of 0.25%.
Were there any affordable housing provisions?
No, the affordable housing provisions in Camden council is 15 or a site area of 0.5 hectares more dwellings to contribute to the supply.
What was this properties site area?
0.013 hectare
How are build costs impacting viability of the development?
rising build costs and falling GDV values mean that profit margins and return on investments are lower.
