Development Appraisals

Question 1

Have you undertaken a sensitivity analysis? What did you do?

Answer 1

Yes

Varied build costs, yield and rental values
Changed phasing options
Could have used software ‘Monte Carlo’ but no experience

Question 2

What are the benefits / pitfalls of low gearing

Answer 2

Gearing is a measure of a company’s long term debt against its equity. Low gearing is less risky but higher gearing offers a better profit on cost.

Question 3

What is an IRR? What is a good example of one?

Answer 3

Measures the profitability of investments

12%

I would look at RICS guidance financial viability in planning

Question 4

What do purchasers costs break down to?

Answer 4

Agency 1%
Legal 0.5%
VAT (on agency fees) 0.2%
SDLT 4%

Total 5.8%

Question 5

What is an example of a dev appraisal you’ve done recently?

What guidance could you have used?

Answer 5

Project x Manchester city centre

RICS guidance - VIP 12 valuation of development land

Question 6

What are the main headings on a residual appraisal?

Answer 6

Income
Developer profit / site value
Build costs
Professional fees
Finance rate

Question 7

What are the professional fees ?

Answer 7

Typically 10-15%

Architect
M&E
Highways
Environmental
Planning consultant 
QS / employers agent 
Acoustics
Fire
Services