Development Appraisal Flashcards
What are development properties
Interests where redevelopment is required to achieve the highest and best use, or where improvements are either being contemplated or in progress
Give examples of a development property
a) The construction of buildings,
b) Previously undeveloped land which is being provided with infrastructure,
c) The redevelopment of previously developed land,
d) The improvement or alteration of existing buildings or structures,
e) Land allocated for development in a statutory plan,
f) Land allocated for a higher value use or higher density in a statutory plan.
What are the purposes for conducting a development valuation
1) Advice on financial reporting
2) Loan security
3) Acquisition
4) Sale
What is market value
Value of the development property assuming optimum development, taking into account current and prospective economic and market circumstances and planning conditions. This may include alternative development solutions for the site
What is hope value
The possible change in value in the future due to a change of circumstance
Marriage value
A added value achieved due to the merger of two or more interests
What valuation method would you use when looking at development property
Market Comparison
Residual method
Discounted Cash Flow
What are the options a developer may have when looking at development property
1) Develop
2) Develop in phases
3) Dispose
4) Defer/ wait
How is a cash flow used in development property
Used to strengthen a residual valuation by accurately reflecting finance. This is achieved by splitting income and expenditure into periods (months) in order to reflect changes in a projects finance for example the phasing of development
How is finance calculated
Using a simplified method finance is charged on 50% of costs in order to reflect the phasing of the project (S-Curve)
A more complex model would be using cash flow on 100% of costs.
The rate of finance is a blended amount used to reflect all aspects such as arrangement fees, exit fees and is an amalgamated rate. Can be between 5-7%, finance rate will vary depending on the developer and their funding arrangement with the bank.
What is development appraisal
Financial appraisal of a specific development site used to calculate either the residual site value or the residual development profit
Residual Valuation
The value of a development site which reflects development potential. The residual is normally either development profit or land value
What is a viability report
Assessing if a site is financially viable by calculating if the value generated by a development is more than the cost of developing it
What was the governments recent review of the planning system called
Planning For the Future, White Paper
What is the current rate of annual housing the UK must provide
Roughly 330,000
What changes were considered in the recent UK government review
- Defer Community Infrastructure Levy payments and raising the contribution threshold so developers only pay for schemes of 40 or 50 homes. This is until the impact of COVID-19 is over
- Seeking to accept permission in principle for large scale schemes
What recent planning changes have been made
New permitted development rights allow for additional stories on dwellings and new dwellings in commercial or mixed use areas.
Business and Planning Act 2020, Extending the dates on which planning permission, outline planning permission and listed building consents might otherwise expire
What is the NPPF and what did it introduce?
National Planning Policy Framework
Main aim of legislation was to speed up the planning process and to ensure sustainable development
What did the Localism Act 2011 introduce
Set out a series of measures intended to transfer power from central government to local authorities and local communities. For example the introduction of the Local plan and Neighbourhood Plan
Name the three types of listed building
Grade 1
Grade 2
Grade 2*
When do you need listed building consent
Any alteration or extension which will impact the character or interest of a listed building
What finance rate do you typically adopt for a development appraisal
5-7% finance calculated on 100% cost debt
On what basis is the finance rate calculated on?
It is a blended rate encompassing the lending market and risk at the time. Exit costs and lending fee are reflected in the rate
What are the recent changes to the use classes
Class E
Shops, offices, gyms, restaurants, residential industrials
Class C
Dwelling houses, hotels and guest rooms
Sui Generis
Cinemas, pubs, takeaway food
Class B
Industrial and storage and distribution
