Development Appraisals Flashcards
What is the difference between s106 and cil
S106 agreements address site specific mitigation required to make a new development acceptable in planning terms. Whilst CIL addresses the broader economic impacts of the development
Cil payments are made within 60 days of commencement date where as s106 payments are usually paid in instalments as the development progresses
What is CIL
Community infrastructure levy which is placed on new developments in the area to contribute to the infrastructure needed to develop the area
Paid by a price per meter on net additional floor space. Self build social housing and charitable developments are excempt
Cil is paid within 60 days of commencement date
What is section 106
Section 106 forms planning obligations set by the council which are legally binding.
Can include making so many affordable houses,
Having so much green space
Or contributing money to flood mitigation etc.
S106 payments are usually made in instalments
What is part L in Development
Sets standards for buildings energy efficiency and carbon emissions.
What is first fix and second fix in construction
First fix refers to after the building is wind and watertight. First fox involves structural work such as putting up stud walls, framing, cables and pipes and is done before any plasterwork
Second fix involves finishing touches after plastering, which involves connecting sinks and baths to pipes, putting on skirting boards, switches and other decorative features. Includes painting
What is a development appraisal
A calculation used to establish the viability/profitability of a proposed development based upon the clients inputs.
It can assume a site value or calculate a site value
What is a residual site valuation
Based on the concept that the value of a property with development potential is derived from the value of the property after development less cost of taking the development including a profit for the developer
What software do you use for development appraisals
I personally use aprao to conduct my development appraisals I am aware there are other software systems out there such as argus
What costs do you deduct from GDV for. A development appraisal
Build costs
Professional fees
Planning fees
Market,letting and disposal costs
Contingency
Finance costs
Site specific costs such as demolition
Profit
What is sensitivity testing
Due to the lag from when a valuation is undertaken to when the development is complete. Market factors may change I therefore produce a sensitivity analysis which may show how profit will change if average build costs or GDVs rise or fall.
What is contingency
A future event or circumstance that cannot be predicted with certainty such as additional construction
How do you work out your contingency rate
Based on the risk of the development, typically between 5-10%
How do you calculate gdv of a development
Usually use the market approach and comparable method of valuation to apply a rate psf to the development
How would you reflect planning requirements in your development appraisal
I would take into account an appropriate level of s.106 costs, that I would find from the relevant planning authority. This would also be deducted form GDV
How do you estimate the total construction cost of a development
I would look to use BCIS to ascertain what cost levels are on nearby schemes in the area.
Where would you get your finance rate for a development appraisal from?
Firstly I would check with the client as they may have a specific loan facility and be able to borrow money at a certain rate. Which i would then use.
If not provided I would use a typical finance rate of 10%
Interest should also be calculated to cover the time period from the purchase of the land, construction and sale void to the completion of the loan
Interest is usually calculated on a rolled-up basis meaning that the developer will pay it back in one go once he has exited the loan. Usually upon sale of the development
What is debt funding vs equity funding
Debt funding is lending money from a financial institution
Equity funding is using your own money or selling shares in a company to finance the development
What is a typical LTV rate
60% of GDV or 80% of construction costs
Difference between residual and development appraisal
A development appraisal will typically give you profitability where as a residual appraisal will give you the value of the land
A residual will give you a market value and therefore you would need to use market led costs, either from BCIS or if the clients costs appear reasonable or they have gone to the market to actively obtain costs.
A residual is based on the valuers inputs and is for a practical purpose
A development appraisal will be based off costs provided by the client
What are the main weaknesses of the residual method of valuation
Extremely sensitive to minor adjustments
High quality of information for the inputs is essential
Does not consider timing of cash flows
Should always be cross checked against comparable sites when possible
Why are purchases costs deducted from an appraisal
Purchasers costs are deducted from GDV as a purchaser would need to pay these when buying the finished product. This will provide the NDV
How would you reflect potential contamination costs in the valuation of a brownfield site
Talk to an expert in the field to obtain a cost to deduct, otherwise I could increase contingency or even soften the yield used to obtain by GDV
What is a section 278 payment
Used for highway works
whats included in Professional fees and how much are they
Usually 10-15% and consist of architect fees, building surveyors, project managers
