Software packages Flashcards
What is a development appraisal?
An estimate regarding the market value of a particular property at a specific date – the most probable price that the property will bring in a competitive and open market
Capitalised value of the income from the tenants in a property = valuation and referenced to accepted
market yield
Cashflow is then the life of the appraisal in determining its current value (NPV)
What software packages can be used for a development appraisal?
ARGUS Developer - great for commercial, helps map out cashflow
Pro Dev (PDS) – Fairly basic - for basic schemes
KEL – Robust
Aprao - Online, certain limitations
What are the functions / uses of ARGUS Developer?
Typical appraisal software and helps to map out cashflow (which can be used to determine the ‘value’ of a property)
Helps to work out methods to finance your projects
Can be used for sensitivity analyses
Basic interest - assumes we fund this all ourselves
Structured interest - we can look for bank funds and loans
Residual land cost: what the land will cost you using specific KPI (i.e. on 20% profit and 80% cost)
Timescale and phasing: defines cash flows
Always 7 development phases which can be modelled in the cashflow; i.e. purchase, pre-construction, construction, post development, letting, income flow, sale
Cash flows - timeline of cash flows with sales and revenue, unsold unit fees, land purchase, survey etc.
‘Summary’ contains one page of our input, our revenue, profits etc
IRR can represent a performance measure on property returns ‘unleveraged’ and ‘leveraged’
You can export you cash flows into excel.
We are trying to establish if this building is good enough for us to purchase (Viability Programme)
What are the functions / uses of ARGUS Enterprise?
The management of properties and asset management, cash flows, revenues, analysis, present value
Can generate a property valuation
Investment Portfolios = can model complex portfolios, e.g. if you are bringing partners on board to finance acquisition and how spread profit appropriately
Sensitivity Assumptions = ‘what if’ scenarios / sensitivity analyses
Charts of Accounts = forecasting data, i.e. budgets for expenses
Net effective rent = ARGUS approach, a performance metric giving us the annual value of any lease
Global categories - can input inflation rates for next x years
What is an advantage of ARGUS Enterprise?
It has a lot of functionality and creates synergy between cash flow/budgeting and understanding building values
What is a disadvantage of ARGUS Enterprise?
Some of the user interface is complicated and rigid and could be made more user-friendly
What is the PRODEV PDS software?
Appraisal software, developed to offer a more detailed level of financial modelling
Fairly basic software useful for basic schemes
Ideal for creation of Residential, Commercial, and Mixed use development appraisals
Good and simple product
Calculation of a property’s profitability, with an enhanced level of detail
The results are presented as a development appraisal summary with an accompanying cashflow
What are some types of KEL appraisal software packages?
KEL Sigma - Fully comprehensive property valuation software
KEL Delta - Development appraisal software
KEL Portfolio - A powerful tool for analysts or fund managers
What is the Aprao software?
Aprao is a cloud-based online development appraisal platform designed to improve accuracy, consistency, and efficiency
However potential issues where outages can occur due to any reason and if your internet connection goes down you would not be able to access the application or data and potential issues with security
What are the pros and cons of a Microsoft Excel model?
Simplified and perhaps easier to use / user-friendly
Accuracy totally based on the correctness of the user’s formulas and inputs
How does the ARGUS Developer software work?
Able to model phases: (1) buy, build, sell, (2) buy, build, hold, sell (operated asset)
Can conduct sensitivity analyses on software by holding certain variables constant
Basic / structured interest – we fund ourselves / bank funds and loans
Residual land cost: what the land will cost you using specific KPI (i.e. on 20% profit and 80% cost)
Timescale and phasing: defines cash flows
Always 7 development phases - i.e. purchase, pre-construction, construction, post development,
letting, income flow, sale. If you do not want one of these phases, set duration to 0.
Set project start date and adjust / change duration of phases.
Sales period: flats may sit empty for a long period.
Deposits tab - i.e. take 10% deposit for 3-bed units.
Unsold unit fee - when the unit is vacant / empty, we still have to pay void costs e.g. gas /
electricity.
Cash flows - timeline of cash flows with sales and revenue
‘Summary’ contains one page of our input, our revenue, profits, NPV, IRR, revenue, etc.
Set Growth and Inflation rates
Stepped Rent Profiles - can indicate increased rent intervals at £5 every 6 months, then to
perpetuity thereafter
Rent Additions / Costs - we can set the service charge for all tenants at £2 / ft2
Can set architect’s and engineer’s fees to fixed amount / %
Input occupancy levels in rentals ‘Click to view operating assets’ and you can set occupancy rates
for month-by-month basis
Apply a simple interest select ‘interest’ and apply debit rate (e.g. 6%)
Set Repayments tab - who we pay back in what order
How does the ARGUS Enterprise software work?
Scenario when generating portfolio: can create separate scenarios for sensitivity
Investment Portfolios = complex portfolios, e.g. can model if you have partners on board to finance acquisition and how we will repay this and to spread profit appropriately
Charts of Accounts = forecasting data, i.e. budgets for expenses
Net effective rent = ARGUS approach, a performance metric giving us the annual value of any lease
Global categories - can input inflation rates for next x years.
Create property asset from scratch - type mixed use office / retail
Expenses = operating and non-operating = bills, taxes, maintenance, etc. and capital expenses (CAPEX)
Can model expenses (service charge / utilities etc) as recoverable, meaning the tenants will
pay for them
Leasing costs = for improvements and market leasing
Market Leasing tab: Market Leasing Profile / Assumptions (MLA) and start / end date of tenancies
We tell ARGUS how much we pay to purchase the property
Loans will fall under the Debt Financing tab; set purchase price to 50%. Loan term is in months, i.e. 30 years = 360 months etc.
Valuation Reports tab: IRR matrix. This can show us the IRR leveraged and unleveraged.
We have a cash flow report for the property and for the individual tenant also
Can decide if asset is eligible for VAT and tick appropriate box
Trad Val tab - Capitalization Yields - we can input Term and Reversion method, Core and Top Slice
Zoning - i.e. area nearest the window is the most valuable area
What should the modeller first decide when conducting a financial valuation?
Decide whether to use BESPOKE property software (i.e. Argus or Estatemaster) or whether to strike out INDEPENDENTLY in Excel
What are the advantages of bespoke property software packages?
Speed and accuracy
Ability to generate many different scenarios
Participation in a global community
Assistance from the software vendor
Compatibility with chartered surveyor requirements
Can generate superlative reports and charts
Can lead to improved accuracy, flexibility to perform sensitivity analysis, have increased robustness and
ensure your management team have a financial model they can rely on
What are the disadvantages of bespoke property software packages?
Cannot yet handle Monte Carlo for proper risk analysis, relying instead on scenario analyses
Sometimes spurious (fake / illegitimate)
Often quite fair – revolve around particular taxes in particular jurisdictions, such as the final-tax option in Indonesia
Presumed or real difficulties with organising phasing (development built in different phases?)
Unusual types of real estate, such as those bordering on infrastructure, or a reluctance to trust hidden software codes
