11 Development Appraisals Flashcards
What is a development appraisal?
Used to financially assess the viability of a development scheme
Apart from assessing viability, what else can a development appraisal be used for?
Used to assess the profitability of a proposed scheme and it’s sensitivity to changing inputs
E.g. uses / rents / yields / financial contributions (S106/CIL)
What is the method used in a development appraisal?
Gross Development Value - Total Development Costs
What is a residual appraisal?
Used to establish the residual site value (at the valuation date for a specific purpose)
I.e. the market value of a site based on market inputs
What is the method used in a residual valuation?
GDV - (Total Development Costs + Developer’s Profit)
When establishing the GDV, how should rents and yields be established?
Comparable method of valuation
What type of yield should be used?
All risks yield
What is an all risks yield?
A growth implicit yield that reflects all of the risks and rewards of the property
What are included in total development costs?
- Site preparation
- Construction costs
- Professional fees
- Planning costs
- Contingency
- Marketing costs
SCP PCM
What is included in site preparation?
- Demolition
- Remediation works
- Landfill tax
- Services
- Site clearance
- Levelling and fencing
What is included in the construction cost?
Total cost of building works
Sources:
- Quantity surveyor’s Cost Plan
- RICS BCIS (Building Cost Information Service) (based on GIA)
What are included in Professional Fees?
- Masterplan Architect
- Architect & Principal Designer
- Landscape Architect
- Transport Consultant
- Structural & Civil Engineer
- MEP Consultant
- Fire Engineer
- Sustainability Consultant
- Ecology Consultant
- Façade Engineer
What % of construction costs are professional fees?
10 - 15%
What are included in planning costs?
- Planning Consultant fees
- Planning Application fees
- S106 obligations
- CIL payments
- AH %
- Planning obligations (open space, play requirements, public art, financial contributions, contributions to local services)
- Section 278 payments (highways)
- Building regulation fees
- Specialist report like ES
What % is contingency of construction cost?
5 - 10%
What are included in marketing costs and fees?
- Cost of EPC
- NHBC warranty
Typically what are lettings fees of annual rent?
10%
Typically what are sales fees of annual rent?
1-2%
What interest rate can be applied to an appraisal?
- SONIA rate
- Base rate + premium
- Rate the developer can borrow money
What might a developer need to borrow money for?
- Site purchase (include purchaser’s costs)
- Construction cost
- Holding costs (to cover voids until disposal, such as service charge and interest)
What shape does each cost take?
- Site purchase (straight line using compound interest, over length of dev period)
- Construction cost (S curve)
- Holding costs (straight line basis using compound interest, from PC to disposal)
What is the principle of an S curve?
- Payment of construction costs adopts the profile of an ‘S’ shaped curve over the length of the development project
- Assumption is to halve the interest that would be borrowed for all of the construction period
- Reflects when monies would be drawn down
Typically what % is developer’s profit?
15-20% of GDV or CC, depending on risk
Usually GDV if residential
The % required has gone up due to riskier market conditions
How else can you calculate profit?
Return on capital employed
I.e. Margin on Cost