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PROPERTY342 > 11. Risk Management > Flashcards

11. Risk Management Flashcards

1
Q

How is property development risk best handled? (2)

A
  1. Early recognition of risk and how to handle them
  2. Risk progressive refinement throughout the development process
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2
Q

What are the 5 common developer risk mitigation measures?

A
  1. Substantial pre-leasing (70-80% target) with good tenants on long leases
  2. Pre-sell completed asset before commencing
  3. Negotiate risk taking by contractor (more than just construction risk)
  4. Bond or guarantee against contractor failing
  5. Sunset clause
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3
Q

What is the bond/guarantee against failing contractor used for?

A

Bond - money used to get a new contractor
Guarantee - parent company can pay if contractor is part of a bigger group

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4
Q

What is a sunset clause?

A

Allows the developer to cancel if the development cannot be done

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5
Q

Which risks should be focussed on?

A

Those with the highest probability and highest consequence.

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6
Q

How is decision making risk management?

A

Identifying costs and benefits and associated likelihoods to make balanced decisions

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7
Q

How is risk management best handled? (4)

A
  1. Early range of costs and progressive refinement
  2. Risks managed by those best able to influence them
  3. Prepare and monitor risk management plan
  4. Allow 20-30% profit provision
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8
Q

What are the 4 categories of risk and how are they measured?

A
  1. Well known and understood
  2. Aware of but considered unlikely
    ^ Assess probability and factor in to a degree
  3. There but not identified
  4. The unknown
    ^ contingency and profit sum covers these
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9
Q

What are the top 3 risks to developers?

A

Environmental
Time delay
Land cost

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10
Q

What are 6 pre construction risks?

A
  1. Environmental
  2. Approvals
  3. Political
  4. Experience
  5. Market
  6. Feasibilities
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11
Q

How is environmental risk mitigated? (3)

A

Expert consultants
Analysing cost impacts
Contracts conditional on resolving issues

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12
Q

How are approvals risks mitigated? (3)

A

Purchase conditional on re-zoning/consent
Confirm basis of contributions
Active liaison with Council

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13
Q

How are political risks mitigated? (3)

A

Work with community
Try to address concerns
Be transparent

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14
Q

How are experience risks mitigated? (1)

A

Use experienced builders with good track records

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15
Q

How are market risks mitigated? (2)

A

Critically evaluate location
Factor deficiencies into land price

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16
Q

How are feasibility risks mitigated? (2)

A

Disciplined approach
Reject marginal projects

17
Q

When should risk planning be done?

A

At the end of each development stage to set the activity for the next stage

18
Q

How should risk planning be done?

A

Using risk assessing techniques like the risk matrix - list risk and categories by probability and impact

19
Q

What is the risk with compliance for BC and CCC?

A

BC - compliance taken at the date of application
CCC - compliance taken at the date of CCC
= 2 year gap

20
Q

What are 6 land risks and how can they be mitigated?

A
  1. Buying above market - advice from valuer
  2. Use restrictions - advice from planner
  3. Building title/easement restraints - advice from land surveyor
  4. Ground conditions - advice from geotech engineer
  5. Tangata whenua concerns - awareness and early consultation
  6. Environmental - advice from environmental engineer
21
Q

What are 5 design risks and how can they be mitigated?

A
  1. Does not meet objectives - ensure all understood
  2. Not the best value solution - ensure best selection chosen
  3. Does not work for all - early consultation
  4. Tangata whenua concerns - ongoing consultation
  5. Consenting - early discussions and public interest acknowledgement
22
Q

What are 6 building cost risks and how are they mitigated?

A
  1. Not fit for purpose (cost increases) - good design and detailing
  2. Overseas exchange rate changes - buy covers on futures market
  3. Inflationary costs - adopt fixed sum contract
  4. Design co-ordination and best value solutions - design/build contract, quality designers
  5. Contractor insolvency - bank bond or parent company guarantee
  6. Completed building operating costs - PPP
23
Q

What are 6 time-lease-sale risks and how are they mitigated?

A
  1. Running over programme - penalty to contractor, review progress regularly
  2. Market demand change - pre-lease before construction
  3. Tenant insolvency - rental guarantee bonds
  4. NLA total - focus during design
  5. No buyer at end/market change - pre-sell before construction
  6. Dispute with pre-sell agreement and buyer walks away - purchase put option at outset
24
Q

How are contractors given extra risk? (2)

A
  1. Manage designers for stages 4 or 5
  2. Have fixed price contracts including developed design details to meet the brief, BC and compliance
25
Q

What is the problem with contractors taking extra risk in NZ?

A

NZ contractors not equipped for this and need to manage their own risks

PROPERTY342 (21 decks)

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