5. Commercial Assessment

Question 1

What are the 3 commercial assessment principles?

Answer 1

Cost, revenue, decision making

Question 2

How is the go/no go decision made?

Answer 2

Assess whether development profit (costs - sale value) is okay

Question 3

What are the 5 categories of cost?

Answer 3

Land
Design
Construction
Development
Financing

Question 4

What are the 2 categories of revenue?

Answer 4

1. Converting revenue from leased area to sale value using the cap rate
2. Sum of outright sale prices

Question 5

What 4 things are included in LAND costs?

Answer 5

1. Land Cost - purchase value
2. Legal - fees for due diligence/purchase
3. Survey - surveyor due diligence
4. Vacant Possession - cost to have occupants vacate

Question 6

What 2 things are included in DESIGN costs?

Answer 6

1. Design team
2. Topo, geotech, specialists

Question 7

What 5 things are included in CONSTRUCTION costs?

Answer 7

1. Demolition
2. Building
3. Inflation up to construction
4. Inflation during construction
5. Contingency

Question 8

What percentage of TPC is generally accounted for by the building cost?

Answer 8

60-70%

Question 9

What 5 things are included in DEVELOPMENT costs?

Answer 9

1. Holding costs
2. Real estate fees
3. Promotion/brochures
4. Inducements
5. Development fee/infrastructure/conditions

Question 10

How is holding costs calculated?

Answer 10

Council rates per annum * development period in years

Question 11

How are inducements calculated?

Answer 11

Subtotal revenue * inducement in years

Question 12

How is design team cost calculated?

Answer 12

Percentage * building estimate

Question 13

How is inflation up to construction calculated?

Answer 13

(demolition + building) * building cost inflation * (development period - construction period)d

Question 14

How is inflation during construction calculated?

Answer 14

(demolition + building + inflation up to construction) * building cost inflation * inflation factor * construction period * 0.58

Question 15

In the inflation during construction calculation, what is the inflation factor and 0.58 for?

Answer 15

Inflation factor - amount recovered as inflation not paid on developer’s profits
0.58 - cash flow factor as inflation wont apply to works that have been previously completed and paid

Question 16

How is contingency calculated?

Answer 16

(demolition + building estimate + inflation up to construction + inflation during construction) * %

Question 17

How are real estate fees calculated?

Answer 17

Subtotal revenue * %

Question 18

What 3 things are in the FINANCING costs?

Answer 18

1. Land
2. Development
3. Construction

Question 19

How do you calculate land financing cost?

Answer 19

Land cost * interest rate * [(deposit * development period) + [(1- deposit) * development period - settlement period)]]

Question 20

How do you calculate development financing cost?

Answer 20

0.5 * (design cost + development cost) * design and construction period * interest rate

Question 21

How do you calculate construction financing cost?

Answer 21

0.42 * construction cost * construction period * interest

Question 22

What do design team fees cover?

Answer 22

Core consultants, usually around 10-13%

Question 23

What is a topographical survey?

Answer 23

Land surveyor plan of levels and underground services

Question 24

What is a geotech investigation?

Answer 24

Report and ground drilling investigation analysis to determine foundation design concept and criteria

Question 25

How is the building estimate found?

Answer 25

(gross building areas * applicable rates) + external works; usually prepared by cost planner/QS

Question 26

How is contingency determined?

Answer 26

Based on the level of design developed at that stage eg. 10% at feasibility stage, 3-5% at construction stage

Question 27

What are 4 common infrastructure costs required under resource consent conditions?

Answer 27

1. Upgrading underground sewer and stormwater pipes 2. Public road widening for designated entry lanes 3. Traffic lights to nearby intersections 4. Acoustic barriers

Question 28

What % of building cost could specialist projects like supermarkets have for development fees and infrastructure?

Answer 28

30%

Question 29

What is included in the development period?

Answer 29

Buying land to construction completion

Question 30

How is revenue calculated?

Answer 30

(gross area * net/gross ratio * rental rates) + (number of carparks * rent per week * 52) + naming rights per year = subtotal - management costs (% * subtotal) = total revenue

Question 31

When are feasibility reports done?

Answer 31

Indicative feasibility at the end of stage 2 Detailed feasibility at the end of stage 3 Updated at the end of stages 4 and 5

Question 32

What 9 things should be included in a feasibility report?

Answer 32

1. Complete document describing project and findings 2. Cover 3. Executive summary 4. Contents 5. Brief/objective 6. Needs/outcome/options - demonstrate maximised value 7. Key criteria 8. Conclusions and recommendations 9 Appendix

Question 33

What 3 aspects is development profit most sensitive to?

Answer 33

1. Sale cap rate 2. Rentals 3. Construction cost

Question 34

What is probability risk analysis?

Answer 34

Individually analysing each input variable for a statistical tolerance; plots possible outcomes and probabilities

Question 35

What is gearing?

Answer 35

Using a combination of debt and equity funds to increase developer return on equity but incurs debt risk

Question 36

What are transferrable development rights?

Answer 36

Heritage buildings that cannot be demolished can sell their right to others to develop on their land