Development Apprasials Flashcards
What is the difference between a development appraisal and a residual valuation?
A development appraisal is where you find the profitability from a known site cost (after deducting costs)
A residual valuation is where you find the site cost by by deducting all costs and profit
GDV is what?
An estimation of the completed development value of the site if it were on the open market
What is NDV?
Net development value is calculated by deducting purchaser’s costs such as stamp duty and legal fees from the GDV
What costs might be expected as part of a development or residual appraisal?
Site survey Site purchase price Agents fees SDLT Legal fees Planning costs Finance costs Professional fees Construction costs Contingency Marketing/ letting Agent and legal sale costs
Where might you find information to assist with your appraisal assumptions?
BICS
Agent
QS
What are some financial risks of a development?
Various costs increasing
Delays cost money
What are considered ‘professional fees’
Architect
Structural engineer
Planning consultants
Quantity Surveyor
What are some non-financial risks of development?
Planning risks/delays
Macro economic impacts
Ground condition risk/ topology
Why do you need to be so careful when making your assumptions? What analysis can you undertake to test your assumptions?
Because its all about making the most accurate prediction
Sensitivity analysis to test the impact of changing assumptions
How would you construct a Development Appraisal
Establish costs, by making assumptions based on research/experience/professional advice
Determine the GDV using comparables
Calculate the profit figure
How would you construct a Residual Valuation
Establish desired profit (i.e. 20%)
Determine the GDV using comparables
Establish costs, by making assumptions based on research/experience/professional advice
Calculate the site value to achieve the desired profit
What are key profitability/return metrics?
Profit (i.e. Return on equity)
Profit on cost
IRR
What are the weaknesses of Development Appraisals?
It can’t account for unforeseen changes
Sensitive to minor adjustments to inputs
Quality/reliability of inputs can vary
Give some examples of key inputs?
Construction costs
Yield/rent
Finance costs
Give some examples of typical inputs?
Professional fees
Planning costs
Contingency
Construction costs