Development Appraisal Flashcards
What is a development appraisal ?
A tool used to financially assess the viability of a development scheme.
They can also be used to assess the profitability of a proposed scheme, and it’s sensitivity to changing inputs.
Define a development appraisal ?
A series of calculations used to assess to establish the value/viability/ profitability/ suitability of a proposed development based on inputs.
When would you use a residual site valuation ?
For a specific valuation of a property, hoping to find the market value of the site based on market inputs.
Assumes 100% debt financed
What dates should the inputs be taken from?
The date of valuation.
Explain the methodology of a residual site valuation ?
GROSS DEVELOPMENT VALUE
- Find the market value of the site, based on market inputs.
- Comparable method used to establish rents and yields.
- All risk yield is often applied.
- Rent free and voids are to be assumed.
MINUS
TOTAL DEVELOPMENT COSTS
- Site Preparation: Demolition, remediation works, services, clearance (based on contractors estimates)
- Planning Costs: Section 75’s, consultant fee’s, specialist reports.
- Buildings costs: Total cost of building works.
- Professional Fees: 10% - 15% of total construction costs. Usually for architects, project managers, engineering consultants.
- Contingency: 5% - 10% of total construction costs.
- Marketing Costs: EPC, sale fee, letting fee
- Finance Costs: Interest rates, costs of borrowing.
MINUS
DEVELOPERS PROFIT
- Usually in the region of 20% of GDV.
What are the methods of funding for a development ?
- Debt Finance: Lending from a bank or institution.
- Equity Finance: Own funds used.
Limitations of a Residual Valuation ?
- Relies on accurate information to be inputted.
- Does not consider timings of cash flow.
- Very sensitive to minor adjustments.
What is a sensitivity Analysis ? and what is it used for?
There are 3 forms:
- Simple sensitivity analysis - based on key principles
- Scenario analysis - changes in design
- Monto Carlo Simulation - Using crystal ball software.
What purchase/acquisition costs can be expected ?
Legal fee’s - agency fee’s - Any taxes.
What developer contributions are expected ?
Mandatory requirements providing benefit to the community. Such as contributions to education etc.
What is the development yield ?
Rental income % by the actual cost incurred.
Define GDV?
The market value of the proposed development.
What is the holding costs?
The cost associated with holding onto a site. For example, taxes, maintenance etc.
What is an interest rate?
The rate of finance applied in a development appraisal.
What is net development value?
The gross development value minus assumed sales costs.
Talk me through the process of a residual development valuation ?
- Instruction - T+C’s agreed.
- Investigation: Inspection, property analysis, market research.
- Collection of data: Specific to the development.
- Qualification and verification
- Valuation Report
What two methods of valuation are usually used in development property ?
- Comparable method
- Residual method
What analysing the development potential of a property, a valuer should consider ?
- Planning permission
- Available services
- Infrastructure
- Ground conditions
- Development restraints
- Accessibility
- Car parking
What are purchaser costs?
Stamp Duty Land Tax: Circa 5%
Agency Fees: 1% of GDV
Legal Fees: 0.5%
What is the stamp duty land tax ?
£0 - £150,000 = 0%
£150,001 - £250,000 = 1%
£250,000 + = 5%
Did your build costs vary between the flatted scheme / houses? If so, by how much?
Yes there was about a £40 per sq ft difference. (flatted schemes are in general more expensive as there is communal space that cant be monetised, more utility room and thus boilers, more regulations that are expensive like sprinklers in Scotland post Grenfell)
Tell me a bit about a S75? Does it all have to be onsite?
Section 75 of the Town and Country Planning (Scotland) Act 1997 (often referred to as Section 75 agreements or planning obligations) is a legal mechanism that allows local planning authorities to impose certain conditions or requirements on developers as part of the planning permission process. These conditions are intended to mitigate the potential negative impacts of a proposed development on the local community and infrastructure. It includes area such as affordable housing (% of affordable housing units within the development), infrastructure (roads, parks, public transport), community facilties (health care centre) , transportation (access roads, public transport).
Section 75 agreements are negotiated between the local planning authority and the developer on a case-by-case basis, taking into account the specific circumstances of the proposed development and the needs of the local area. Once agreed upon, these conditions become legally binding and must be fulfilled by the developer as a condition of receiving planning permission.
Do not necessarily have to involve on-site obligations. These agreements can encompass a wide range of conditions or obligations that developers may need to meet as part of their planning permission. Whether the obligations are on-site or off-site depends on the specific circumstances of the development and the priorities of the local planning authority.
What are current build costs?
- Industrial £70 psf +
- Office £220 psf +
- Residential (c. 145 and £180 for flats)
What might ancillary costs be?
Building will need to be connected to infrastructure –gas mains, highway networks etc –sometimes mains have to be moved or on site substations relocated.
For expansive developments, business parks – extensive landscaping and surface car parking (for ex, necessitate the installation of oil interceptors to prevent ground and water course pollution from on-site spillages.
