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AM Case study Flashcards

1
Q

What was the valuation date?

A

25 September 2018 - the date of the report.

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2
Q

What was included in your Terms of Engagement

A
  • Address of Property
  • Client
  • Purpose of the Valuation : Internal Purposes
  • Basis of Valuation: Market Value
  • Valuation Date: 25 September 2018
  • Interest to be valued: Freehold
  • Status of Valuer External
  • Conflicts of Interest: NONE
  • Assumptions Title, condition, planning
  • Departure from val standards: NONE
  • Basis of Measurement: Floor area by client
  • Extent of Investigations Defs and Reservations
  • Nature and Source of info: Details of development
  • Limitation of Liability: £5,000,000
  • Fee Basis: £5,000 fixed fee
  • Reporting Timescale: Report issued by 25th
  • Signature
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3
Q

You said the site was 0.3 acres, what is that in hectares?

A

Conversion rate: 2.47 so 0.12 hectares.

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4
Q

You mentioned there were existing buildings on the site, could you describe them for me?

A

The existing building is a small warehouse consisting of 2 storeys of solid brick wall construction with some slight cracking in the brickwork.

Timer-framed single glazed window with brick lintels

Lack of downpipe from the gutter, hence the staining on the left hand side.

Flat Roof

1960s/1950s building

Use Class B8 (Storage and Distribution)

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5
Q

How do you know it is of solid brick wall construction?

A

Has a combination of headers and stretchers.

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6
Q

What is the other type of brick wall?

A

Cavity Wall - two layers of brick are tied together with metal ties with a cavity in between.

No headers are used.

Evidence - usually a cavity tray, air brick or weep holes

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7
Q

What are the disadvantages of having a flat roof?

A
  • Lack of drainage as debris and dirt can build up

- Have to replace it every 10-20 years

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8
Q

Why would someone construct a building with a flat roof, rather than a pitched roof?

A

Cheaper initial cost

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9
Q

If it was a 1950s/1960s building were you concerned about asbestos in the building?

A

I checked the planning documents and there was no presence of asbestos in the building.

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10
Q

How did you get to your demolition cost?

A

Cross-checked with building surveyors to see if reasonable.

Includes: site clearance and demolition of the building.

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11
Q

If you had to arrive at a demolition cost yourself do you know roughly how much they are?

A

Around £5-£10 per sq ft

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12
Q

What did you estimate for a contingency cost? And why?

A

Contingency is usually around 5% - 10%.

Due to the

  • small-scale nature of the scheme
  • the unlikely movement in build costs

The Contingency should be 5%

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13
Q

What was included in your estimate for professional fees and how did you estimate them?

A
  • Architects
  • M&E consultants
  • Project Managers
  • Structural Engineers
  • Quantity Surveyors

Typically they are around 10/15% of total construction costs

Due to the uncomplex nature of the development, I used the lower end of the scale and established professional fees of 10%.

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14
Q

You mentioned you cross-referenced your residual valuation with other development sites? Are you aware of any Guidance from the RICS on this?

A

Yes.

RICS Guidance Note Valuation of Development Property 2019

  • States that it is best practice to use 2 methods of valuation when valuing developments to cross-reference your figure
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15
Q

How did you analyse the land evidence?

A

2 comparable land sales near by:
43 Bellenden Road and 91-93 Queens Road

Similar sized development in terms of number of units and had a small element of commercial too, both had planning permission and had no affordable housing.

Analysed on a per dwelling basis.

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16
Q

Why did you analyse them on a per dwelling basis?

A

I am aware that some developments are analysed on a per acre basis.

However, I did not believe this was appropriate.

In London sites can be over a different site areas but have similar densities. You may have a site of 1 acre but only able to put 10 units on it.

My site was smaller than the Bellenden Road site but larger than the Queens Road site but despite this I felt they would still achieve similar prices.

So it was more comparable to compare the sites on a per dwelling basis.

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17
Q

What developers profit did you estimate and why?

A

Developers profit ranges between 15-20% usually.

I estimated a developers profit of 17.5% on GDV.

  • Low density scheme
  • Planning permission

However I felt the presence of the railway line made it slightly more risky than other developments of this size.

So 17.5%

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18
Q

Why did you do profit on GDV rather than on cost?

A

For residential schemes you tend to do profit on GDV and for commercial you tend to do profit on Cost.

For a commercial scheme your GDV is highly sensitive to changes as you have a number of things affecting it. eg. rent, yield, void periods etc so its not very secure to base your profit on.

Where as Resi GDVs are much more stable and its more secure to base your profit on.

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19
Q

What influences the level of profit by a developer?

A
  • RISK
  • If a scheme is low risk (pre-let or pre-sold) a lower return may be required.
  • No Planning permission will require a higher profit.

Current market = risker market conditions, therefore percentage of profit required may rise.

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20
Q

Could you give me an example of how you have demonstrated client care during the course of your case study?

A

Maintained contact with the client throughout instruction and answered any queries they had

I provided a sensitivity analysis to better advise my client if fluctuations in the market were to occur.

I produced a report in the time scale that we pre-agreed with the client.

I verified all information I used in order to provide my client accurate advice.

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21
Q

Can you demonstrate how you promoted trust / integrity during your case study?

A

I conducted a conflict of interest check to confirm to the client my advice would be objective and independent.

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22
Q

Could you give me an example of how you demonstrated respect during your case study?

A

I spoke to local agents in the area and maintained respect and professionalism whilst collecting comparable evidence.

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23
Q

Could you give me an example of responsibility during your case study

A

I held a high level of responsibility throughout my case study from beginning to end.

I successfully drafted a red book compliant report and took responsibility for finding the inputs that provided my client with an accurate Market Value.

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24
Q

You said you adhered to Surveying Safely in your case study, what did you do specifically given it was an industrial site?

A

It had been abandoned for more than 3 years or so.

I conducted a risk assessment prior to going to the site.

Before - Planned my route
- Ensured my calendar was up to date with
timings and location
- Someone knew my arrival time back
- Checked history of the site and the planning
documents for any contamination reports
- Would I need any PPE? No.

During - Kept an eye out for any hazards:

         - Slip and trip hazards
         - unsecure live wires
         - Invasive plants
         - If squatters - needles etc.
          - Contamination

After: - Secured the site

          - informed site manager I was leaving
          - Reviewed the risks and reported.
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25
Q

Was there any clothing you considered?

A

PPE (Personal Protective Equipment)

Examples:

  • Hi-vis Jacket
  • Hard Hat
  • Steel toe cap boots

COVID:

  • mask
  • gloves
  • hand sanitzer
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26
Q

Why did you decide that PPE was not applicable here?

A

Despite the fact it used to be an industrial site, it had been empty for 7 years.

There was no machinery on site the site was not under construction so there were not any risks to warrant PPE.

Were not going to enter the building.

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27
Q

How did you check the site was held freehold

A

Checked Title Register and Title Plan on the Land Registry.

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28
Q

Were there any easements / restrictive covenants / rights of way over the land?

A

No

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29
Q

What is an easement?

A

Right to use another persons land for a stated purpose.

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30
Q

Anything on inspection you were wary of, particularly relating to the railway?

A

Japanese Knotweed - invasive plant which can damage structures.

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31
Q

What does Japanese Knotweed look like ? If you saw it what would you do?

A
  1. Take Photo to confirm
  2. Advise the client to get specialist advice and remove it.
  3. Factor in costs of removing Japanese Knotweed into your valuation
  4. caveat report to say this is on the basis the Japanese Knotweed has been removed.
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32
Q

You mentioned asbestos, what is it?

A

There are three types, brown, blue and white.

It is a Hazardous Material and can be harmful to health if disturbed.

Regulation: The Control of Asbestos Regulations 2012

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33
Q

What does The Control of Asbestos Regs 2012 Say?

A

Obligation on the duty holder to:

  1. Assess whether building has asbestos (if not sure assume)
  2. Assess Risk & Plan to Manage
  3. Produce an Asbestos Register
  4. Make Register Available
  5. Review (every 6 months)
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34
Q

What are the penalties of The Control of Asbestos Regs? Is there a defence?

A

Penalties:

  • Fine (Max £20,000)
  • Prison (12 months)

Defence: Undertook reasonable steps and due diligence

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35
Q

What was your developments profit erosion period ? What is the profit erosion period?

A

3.3 years

The length of time it takes for the development profit to be completely eroded following the completion of a scheme due to the running costs of the development.

Eg. Service charge, council tax, interest costs.

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36
Q

When you obtained your BCIS figures, did you consider anything else?

A

I am aware sometimes it is appropriate to allow for inflation due to the time lag.

However, I sense checked my figures with my in-house building surveyors who said it was reasonable without.

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37
Q

If your site did not have planning permission, how would the appraisal differ?

A
  • Increase the time period after purchase and before construction to allow for the time it may take for planning permission.
  • Increase developers profit to around 20-25% to allow for the risk that you may not obtain PP.
  • Increase planning costs - entirely depends on the site. Would obtain an estimate from my planning team for this area and size.
  • Deduct 20% from residual land value - v subjective.
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38
Q

If your site had affordable, would you include CIL?

A

No, CIL only on private sales.

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39
Q

How do you calculate affordable housing if you had it?

A

I am aware that there are percentages of affordable housing required by the the local councils in their local plans and the split.

I would look on here and go to my viability team to get a quote for the type of affordable housing and apply that to my appraisal.

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40
Q

How would you distribute the affordable housing sales?

A

Not after PC.

Before PC as housing associations usually pay a lump sum during construction phase.

Typically around 50% during construction (first brick on the ground) and 50% on practical completion.

Market Norm but can depend

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41
Q

What was included in your construction costs?

A

Build cost

S106 Path

Contingency

Professional Fees

Finance Rate

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42
Q

What was included in your planning costs?

BIG TOPIC FOR DISCUSSION

A

Borough CIL £220,000

Mayoral CIL £44,000

(Both obtained from planning permission)

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43
Q

If you did not have CIL in your planning permission, how would you calculate it?

A

Mayoral CIL
- On government website
- Figures on a GIA basis on a rate per sq m
- Ranges from £20-£50 depending on location
- But increase since April 2019 to allow for cross rail
- This was £35 psm
Now its £60

FIND OUT ON IN RELATION TO YOUR CASE STUDY.

Borough CIL

  • On council website
  • Figures on a GIA basis on a rate per sq m
  • Ranges from
  • This was £218 psm for resi

CIL is paid on both resi and commercial over 100 sq meters

And is based on the net additional - even if it is being demolished.

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44
Q

Although not in your planning costs, what others may you find in other developments?

A

S106 Agreements

s278 payments for highway works

Planning application fees

Cost of Planning Consultants - can be very high. Would get quote from our in house planning team.

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45
Q

How much are planning application fees?

A

Can vary!

For a development of this size around £12,000.

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46
Q

How did you estimate Build Costs?

A

BCIS and cross checked with building surveyor

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47
Q

What is BCIS?

HOT TOPIC

A

Data platform provided by the RICS which provides build costs

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48
Q

What is included in BCIS?

A
  • Base Build Rate
  • Contractors overheads and Profit
  • Preliminaries

Excluded - EXTERNALS

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49
Q

Where does RICS obtain the BCIS data from?

A

Obtains monthly updates from Quantity surveyors, Building Surveyors and contractors prices/ tenders.

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50
Q

What are the limitations of BCIS?

A
  • As its area specific, sample may be too small to give a true reflection of build costs.
  • Can be outdated so sometimes need to apply inflation
  • Large contractors don’t put their figures on BCIS as would give away market advantage
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51
Q

What did you include in your estimate for Marketing Costs and Fees and how did you calculate them?

A
  • Marketing Fee for Both Resi and Commercial
    (0. 5% of GDV)
  • Letting Agent Fee for Commercial (10% of first years rent)
  • Letting Legal Fee for Commercial (5% of first years rent)

These are standard market assumptions based on market norms

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52
Q

Did you include National House Building Council (NHBC) warranty for residential schemes?

A

No - we do not usually account for this in my firm

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53
Q

What date were your inputs take from?

A

25 September 2018 - the Valuation Date

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54
Q

What was your finance rate (interest rate)?

BIG TOPIC FOR DISCUSSION

A

6%

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55
Q

How did you estimate your finance (interest rate)?

A
  • In house finance team

who recommended that 6% was appropriate and the rate for speculative lending and the market norm.

BECAUSE:

This is the rate that a hypothetical developer could secure finance for this development to create a level playing field as we do not know the type of developer who may purchase the site. In reality, a well known house builder will get a more favourable rate.

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56
Q

What does your finance rate incorporate? What is it made up of ?

A
  • LIBOR Rate - rate that banks can borrow from each other (1%)
  • Premium - risk for property development (couple of percent)
  • Project monitory fees, Arrangement fees, Exit fees (couple of percent)
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57
Q

What is current base rate in UK?

A

0.1 %

Dropped from 0.25% to control the impact of Corona Virus in March 2020

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58
Q

What stages did the developer need to borrow finance? What basis are they represented?

A
  1. Site Purchase - calculated on a straight-line basis
  2. Total Construction Costs & Fees - based on an S-curve to reflect when the money is actually drawn out. (Less at the start, lots in the middle, and less at the end)
  3. Holding over costs - to cover the voids until disposal of the scheme - again straight line basis compound interest.
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59
Q

What holding over costs need to be accounted for after the development is completed, until disposal of the scheme?

A

Residential

  • Service charge
  • Council tax
  • Interest charges

Commercial - Rates & Service charge

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60
Q

What capital stack did your residual valuation assume? and Why?

A

100% Debt Finance

Allowed for a hypothetical developer who may need to borrow 100% debt.

Have to have a level playing field to establish the Market Value

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61
Q

What are the two methods of development finance?

A

Debt Finance - Borrowing money from a Bank

Equity Finance - Own money, Forward purchase from an investor etc.

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62
Q

What is a Loan to Value ratio?

A

Measures the risk the lender is willing to take on the loan

Measures the relationship between the amount of money loaned, and the Market Value of the property.

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63
Q

What is a typical Loan to Value ratio?

A

60%

So Borrower is supplying 40% of the money and borrowing 60%.

Where as LTV ratio of 80% means the Borrower = supplying only 20% of the money.

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64
Q

What are the typical components of a capital stack for development?

A
  1. Senior Debt - (TAKES PRECEDENCE) if borrower defaults, they take ownership of the property. eg. bank
  2. Mezzanine Finance - (SECOND IN LINE) Has higher rate of return than senior debt. (Gets a share if cant pay back)
  3. Equity - Riskiest and most profitable.
    All other capital will be paid back before this one.
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65
Q

When would you use mezzanine funding?

A

When developer needs additional funding over the normal LTV ratio

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66
Q

What is an overage?

A

The arrangement made for the sharing of any extra profit.

Would usually be dictated by a pre-agreed formula.

Shared between landowner and developer - known as a Claw Back

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67
Q

What are the limitations of the residual valuation method?

A
  • Dependent on accurate inputs
  • Very sensitive to minor adjustments
  • Assumptions are hidden and not explicit eg. in yield
  • Assumes 100% debt finance - not realistic.
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68
Q

What other variables could you have conducted in your sensitivity analysis?

A

I did: Build Costs and GDV

Other options:

  • Finance rates
  • Developers Profit
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69
Q

What are the 3 forms of sensitivity analysis?

A
  1. Simple - key variables, yield, GDV, build costs, finance rate
  2. Scenario - changing scenarios. eg. affordable housing, timing, costs - phasing scheme differently
  3. Monte Carlo - using the probability theory with software such as crystal ball
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70
Q

What Guidance has the RICS released on valuing development property?

A

RICS GN on Valuation of Development Property 2019

RICS GN on Valuation of New Build Homes 2019

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71
Q

How is development property defined in the RICS GN on Valuation of Development Property 2019?

A

Where redevelopment is required to achieve the highest and best use, where improvements or construction is in progress at the valuation date.

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72
Q

According to the RICS GN of Development Property 2019, what should your MV assume?

A

Optimum development - highest value.

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73
Q

What is the purpose for CIL?

A

Mayoral - Cross Rail

Borough - Finance the infrastructure that may be needed for the development

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74
Q

What does Profit on GDV Reflect?

A

It is your profit in relation to your total GDV

Profit / Total GDV

My Case Study: 17.5% (MY INPUT)

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75
Q

What does Profit on Cost Reflect?

A

It is your profit in relation to your total cost

Profit / Total Cost - as a percentage

My Case study : 21.41 % (DEVELOPERS INPUT)

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76
Q

What does Profit on NDV mean?

A

Profit on Net Development Value

Profit / NDV including purchaser costs

My case study: 17.63 % (DEVELOPERS INPUT)

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77
Q

What is the Development Yield (on Rent)

A

Rent of the Commercial / Total Costs of Development

81,696 / 6,062,536

My Case Study: 1.35% (DEVELOPERS INPUT)

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78
Q

What is an Equivalent Yield?

What does the Nominal Mean?

A

Weighted average between term and reversion.

Nominal - When the rent is assumed to be paid in arrears

My Case Study: 8%

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79
Q

What is an Equivalent Yield (True)

A

Yield that assumes rent is paid in advance.

My case study: 8:42% (DEVELOPER INPUT)

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80
Q

What is an IRR?

A

Internal Rate of Return

Return on an investment.

The rate at which a cash flow must be discounted at to get a Net Present Value of Zero.

If NPV > 0 or = 0 then return has been met.

My Case Study : 25.3%

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81
Q

What is Rent Cover?

A

Rent cover:

Profit of whole development / Rent of commercial element

1,300,000 / 81,696

My Case study: Rent cover = 15 years 11 months

AMOUNT OF TIME IT WOULD TAKE FOR THE RENT OF THE COMMERCIAL TO REACH THE LEVEL OF PROFIT FOR WHOLE DEVELOPMENT

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82
Q

What does ‘Credit Rate 0% (Nominal Mean)

A

Money you are owed = 0

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83
Q

‘Other’ in Finance Rate

A

Relates to the Hold Over Period
(Period between completion and selling all flats)

6 Months Holding Over Period to sell flats

If I increase it, the cost would go up

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84
Q

What were the Timings for your appraisal?

A

Acquisition and Demolition - 3 Months

Construction - 12 months

Holding Over Period - 6 months

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85
Q

What is TPI? Did you link your CIL to this?

A

The tender price index (TPI)

Difference - 145 - 160 so need to get the percentage.

It measures the trend of contractors’ pricing levels in
accepted tenders, i.e. cost to client, for schemes let on a lump sum basis built up from rates and quantities.

Depends on the year.

Tarrif - 32 - 42 psf - percentage increase.

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86
Q

When was the Planning Permission Granted?

A

24 April 2018

Took them just under a year

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87
Q

Did you consider Help-to-Buy in your report?

A

Yes but since only 3 units were below £600,000 I did not consider it a big factor influencing supply and demand.

I therefore anticipated the units would take longer to sell.

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88
Q

What was your GDV of the Residential?

A

£6.5 million

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89
Q

What was your GDV of the Commercial

A

£945,000

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90
Q

What was your combined GDV

A

£7.4 million

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91
Q

What were your Purchaser Costs?

A

Stamp Duty, Legal Fees, Estate Agency Fees + VAT

5%) (1% sales) (0.5% legal) (VAT on sales and legal 0.3%

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92
Q

What was the Rateable Value of the Current Building

A

£31,500

Due to be demolished so needs to be re-evaluated.

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93
Q

Describe Peckham as a location

A

Peckham has a mixture of residential, restaurants, bars and pubs. It is a lively area that more and more people are moving to and is becoming increasingly expensive.

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94
Q

What Due Diligence / Statutory Enquiries did you undertake in your report

A
  • No EPC
  • Tenure
  • Planning
  • Highways - assumed no highway proposals that may have an affect
  • Flood Risk - none
  • Contamination - report stated that there was no asbestos and no other contamination.
  • Business rates
  • Coal Mining
  • Invasive Plants - JK, Giant Hogweed, Himalayan Balsam.
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95
Q

What did the development consist of?

A

9 Residential Dwellings and 4 B1 Commercial Units

3 x 2 bedroom flats
2 x 2 bedroom Duplex
4 x 3 bedroom houses

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96
Q

What specification were the apartments?

What features were of higher specification?

A

They were of high specification, all had outside space.

  • Double glazing, aluminium frames
  • Large outside space (balconies)
  • Developer gave me an order form for what they would usually do in a development of this kind - an example would be oak flooring.
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97
Q

What was the Net to Gross Area

A

Net was 80% of Gross.

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98
Q

What is B1 Use and where are the definitions for Use Classes?

A

Town and Country Planning (Use Classes) Order

B1 = Business Use

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99
Q

Describe the two developments that you used for your comparable evidence for 2 bedroom apartments?

A

2-4 Woods Road

Development of 122 one to three bedroom apartments. Worse spec located closer to transport links and closer to amenities such as restaurants.

If it weren’t for the railway lines I would anticipate subject site would achieve higher values.

Catcher Building

Development of 31 apartments from studios - 3-bedroom flats. Very high specification and better location with amenity space too.

Subject site achieve higher

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100
Q

Describe the most reliable comparable Caulfield Road?

Why did you think it was the best comp?

A

Refurbished to a high standard in a slightly better location. It was a Victorian terraced house with a garden.

It was large in size, was a recent transaction, and had been newly refurbished.

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101
Q

What does SL mean on your site plan?

A

SL = Sluice

Sliding gate to control flow of water

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102
Q

What does MP mean on your site plan?

A

Milepost

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103
Q

What does the purple dotted line mean on your site plan?

A

Road under construction

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104
Q

What scale is your site plan?

A

1: 1,250

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105
Q

What scale is your Situation Plan?

A

1: 10,000

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106
Q

What scale is your Location Plan?

A

1 : 25,000 m

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107
Q

How did you deal with the New Build Premium?

A

I used comparable evidence of new build schemes and formed the opinion of my values.

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108
Q

Why did you only conduct a sensitivity anlaysis on the residential element of the development?

A

The residential element was the largest section of the development and therefore I felt it would be more appropriate to advise my client on the changes to the residential GDV and Build Costs.

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109
Q

Why did you need to include purchase costs?

A

I used NIY in my calculation for my Commercial Element

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110
Q

Was your contingency a developers contingency or a contractors contingency?

A

Contractors.

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111
Q

I noted that you inspected this site, did you note anything in particular?

A

I externally inspected the site looking for:

  • Access points
  • Contamination
  • Surrounding Area
  • Walked the boundary

Did not inspect internally as it was due to be demolished.

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112
Q

Where did you get your land comparables from?

A

Costar

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113
Q

If you increased the timeline, either the build time or the holding over period, how would that affect your valuation?

A

It would reduce my MV as it would mean more interest would be accrued on the loan

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114
Q

What do you understand by Terms of Engagement

A

Terms of Engagement set out the obligations and expectations.

It forms the contract that both parties must stick to.

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115
Q

Can you proceed without a signed Terms of Engagement?

A

No.

116
Q

How long does commercial planning consent last for?

A

3 years

117
Q

x

A

x

118
Q

How does your IRR compare to the other opportunities in the area?

A

Other similar sites I have done have come out with a similar IRR

119
Q

What are preliminaries?

A

The cost of the site-specific overheads on a project eg. site staff

120
Q

Why did you use Argus developer?

A

My company feel it is the best software for developments

My client requested it.

121
Q

How is 6% calculated?

A

It is calculated using the current base rate plus the extra risk associated with lending against development property.

122
Q

On your inspection were you looking for signs of Contamination?

What signs would have told you if there was contamination?

A

Yes.

Before - Planning history
- Google maps to see the area

During - Look for Chemicals, Oils, Oil drums,
Subsidence, underground tanks, brown
staining on concrete.

123
Q

What do you you do when you suspect contamination?

A
  1. Do not provide advise until specialist report is commissioned.
  2. Caveat the advice with a disclaimer
  3. Deduct remediation costs from the Gross Site Value
124
Q

What would you have done if there was a conflict?

A
  1. Either refused or Accepted.
  2. Seek informed consent.
  3. Manage the conflict
125
Q

Talk me through your costs in your residual valuation?

A
  • Demolition Costs
  • Build Costs
  • Contingency
  • Path
  • Professional Fees
  • Mayoral CIL
  • Borough CIL
  • Marketing Fees (commercial GDV)
  • Disposal Fees (resi GDV)
  • Finance Costs
126
Q

If your site did not have planning, how might you determine how well the borough would receive the application?

A

Talk to my planning team.

Previous Planning Permission & Planning Policy

127
Q

Talk me through your Performance Measures

A
  • Profit on Cost 21.21%
  • Profit on GDV 17.50%
  • Profit on NDV 17.63%
  • Development Yield % (on Rent) 1.35%
  • Equivalent Yield % (Nominal) 8%
  • Equivalent Yield % (True) 8.42%
  • IRR % (without interest) 25.30%
  • Rent Cover 15 years 11 months
  • Profit Erosion 3 yrs 3 months
128
Q

Where would you expect IRR to sit?

A

The internal rate of return (IRR) is the rate at which the net present value (NPV) of a project’s cash inflows and outflows, measured over the project’s life, equals zero. This IRR that yields a net present value of zero is also called the discount rate in the NPV calculation.

Typically expressed in a percent range (i.e. 12%-15%), the IRR is the annualized rate of earnings on an investment. A less shrewd investor would be satisfied by following the general rule of thumb that the higher the IRR, the higher the return; the lower the IRR the lower the risk.

129
Q

Why did you chose to use the residual valuation method?

A

As it was a development site and my client wanted to obtain the Market Value of the site at a certain valuation date.

130
Q

What is the market approach?

A

Using comparable evidence and applying that evidence directly to your valuation

131
Q

How would you apply Purchaser Costs?

A

Apply to GDV to get NDV

132
Q

What were build costs for this scheme

A

£159 for Resi

£119 for Commercial

133
Q

What sorts of things would influence your contingency?

A

RISK:

  • Certainty on build costs
  • Certainty over the market
  • Risk of scheme - does it have planning etc.
134
Q

What would you have done if the client asked you to change the value and provided evidence?

A

I would look at the comparable evidence and make my professional judgement as to whether it was suitable for change my MV.

135
Q

What is IRR?

A

Takes into account when the income is received and when the costs are received. The sooner you receive income the more value IRR places on the profit.

136
Q

You mentioned the site was bound by 2 railway lines, did you take anything into consideration when developing near railway lines?

A

Yes.

I conducted due diligence regarding Japanese Knotweed as I am aware it is often found near railway lines.

137
Q

On the site there was a small industrial unit, was there anything you considered when you were developing the site?

A

Yes.

Contamination is a big factor when looking at industrial buildings. However, the site and building had not been used for over 7 years.

Nonetheless, as the site had planning permission I looked at the environmental report and noted the building had no sign of asbestos.

Additionally, whilst on the general site I looked out for any signs of contamination such as oil drums and staining.

138
Q

If you thought there may be contamination, what would you advise?

A
  1. I would not provide advice until the suspected contamination had been looked at and a specialist report had been created.
  2. I would then caveat my advice
  3. Allow for remediation costs in my report.
139
Q

If there was that risk of contamination, would you just change the costs or would you change any other factors to reflect risk?

A

You could increase the developers profit, however the building was small I don’t believe the risk of contamination was high enough to warrant changing the developers profit.

140
Q

What Contingency did you use and why?

A

Contingency is usually around 5% - 10%.

Due to the

  • the unlikely movement in build costs
  • and the fact its more susceptible to a change in GDV rather than costs

The Contingency should be 5%

141
Q

How do you think that COVID-19 would impact residual valuations/ development appraisals?

A
  • Developer’s could prefer a higher profit to account for risk
  • They could increase time periods to allow for potential lockdowns, not being able to obtain labour or materials.
142
Q

Does Brexit have an impact on developments?

A

Yes it could do.

Could impact on:

ACCESSIBILITY OF LABOUR

COST OF MATERIALS / SUPPLIES

143
Q

You mentioned the building was in a poor state of repair, could you tell me how you identified this?

A
  • The client told me this prior to inspecting the site and provided photos.
  • On site - The building was of solid brick construction however it had defects such as staining on the brick and it had cracking down the wall (subsidence).
  • Due to this we could not confirm the security of the foundation of the building and since the building was being demolished I did not feel it was necessary to enter the building.
144
Q

What is subsidence?

A

The downward movement of a buildings foundation due to a change in ground conditions.

145
Q

Were rates payable on that building?

A

The property RV of £31,500 pa

Liability of £15,000 pa

£3 psf rates

146
Q

Do you think it was safe to be on inspection on the site?

A

Yes as I had already made the decision having spoken to the client about the structural soundness of the property and the fact the building was to be demolished to do an internal inspection.

147
Q

If you had to go into the building is there any clothing you would have considered?

A

PPE.

The most applicable PPE in the circumstance would have been a hard hat, however the most concerning factor to me was the structural soundness of the site which is why PPE was not applicable.

148
Q

For the B1 unit you mentioned you advised them in the report to extend the planning permission to A1 and A3 use.

Would you have to do this now?

A

The Town and Country Planning (Use Classes) Order 1987

From 1 September 2020, for purposes of Use Class, A1/2/3 & B1 to be treated as Class E.

149
Q

What is a S106 payment?

What legislation is it from?

A

The Town and Country Planning Act 1990

It’s an agreement between a developer and the local authority for a contribution towards the local area. Can be financial or can be conditional.

For example for my example the developer had no financial obligation but had to provide a path.

150
Q

What other planning cost you have to allow for other than S106?

A

CIL

Both Mayoral and Borough if you are in London

151
Q

What is the difference between CIL and S106

A

CIL is a community infrastructure level which is charged in order to fund infrastructure in the area that the development needs.

The main difference is that CIL is non-negotiable, where as S106 is negotiable between the developer and authority.

S106 - tends to be site specific

CIL - wider range development
- Based on Net additional floor space

152
Q

How did you work out what CIL was?

A

It was contained in the planning permission.

153
Q

If it was not included in the planning permission, how would you calculate CIL?

A

Local Authority Website - Rates per sq m

Government Website - Rates per sq m

They also have calculators

154
Q

What is the main advantage of CIL over S106?

A
  • TRANSPARENCY - set by gov and open calculations
  • NON-NEGOTIABLE - saves time
  • COLLECT FROM MULTIPLE DEVELOPMENTS - & means authorities will get some funding
155
Q

What were your build costs

A

£159 for resi

£119 for commercial

156
Q

Why are there so many acquisition costs, sales fees, etc

A

1st set is when you acquire the site.

Letting fees of the commercial units 15% (agent & legal)

Sales Fees for the sales of Resi 1.25% (agent&legal)

157
Q

Did you consult any documents prior to attending the site?

A

Yes - Surveying Safely

158
Q

How did you use Surveying Safely?

A
  1. Safe Person Concept

2. Conducted a RISK ASSESSMENT PRIOR TO GETTING TO THE SITE

159
Q

How did you conduct a risk assessment?

A
  1. HAZARDS were contained in the building - structural soundness and the potential for asbestos. Had not been used for over 7 years.
  2. IDENTIFIED WHO WAS AT HARM? Supervisor and I
  3. HOW TO MINIMISE RISK– i. ASBESTOS Due Diligence - Since the site had planning permission I looked
    online for the environmental report which explicitly state there
    was no asbestos therefore the risk was diminished.– ii. STRUCTURE of the building - I deliberated over wearing PPE however since
    I could not guarantee the structural soundness and the fact
    that the building was due to be demolished I determined I
    could diminish risk completely by not entering the building.
160
Q

You mentioned you did not do this on a psf basis, but rather an overall basis, why did you not just adopt the psf value and determine that would be the value?

A

As I felt the units would not achieve those values due to the presence of the railway lines.

161
Q

Why did you not adopt a psf basis and make an adjustment from that?

Do you think assuming a cap val is a lazy approach?

A

I could have done that but I felt it was more appropriate to adjust the overall l values based on the size of the units.

Further, as long as you have analysed on both a sq ft basis and a capital value basis, and described why it made more sense to adopt one over the other, I dont think it is a lazy approach.

162
Q

You mentioned a 10% premium for new builds - sounds a bit random, could you explain?

A
  • I looked at new build two bedroom apartments and second-hand apartments to determine what the uplift was.
  • I cross checked with local agents who said 10% was appropriate.
163
Q

For your commercial what yield did you adopt?

A

8%

164
Q

What type of yield?

A

Net Yield

165
Q

Why did you adopt yield of 8%? Talk me through your comps

A

Peckham lacked a prominent office market. However my best comparable was 41 Peckham High Street.

It was in a better location (closer to the transport links and in the heart of Peckham) and although worse than a new build office it was still in good condition and had similar covenant strength to what I felt would be attracted to the space in the subject development and had 4.5 years years left on the lease.

51 Maxted Road demonstrated a term certain of 5 years and had a stronger covenant strength, as well as being in a much better location towards Camberwell, and I again, I did not believe that the subject property would attract this type of tenant.

11-15 Melbourne Grove was in a better location, had a term certain of 7 years which is unusually long for the Peckham market, and had a strong covenant strength who had been established in the Peckham office market for a while. I felt the strong covenant strength and the longer lease term was unusual for the Peckham office market and I did not think the same type of tenant would be attracted to the subject development site, determining that the capitalisation rate I adopted could not be below that of Melbourne Grove.

Due to the lack of investment evidence I had to make a judgement and I felt that 41 Peckham High Street represented my best comparable, and I consulted with local agents and felt it was reasonable to arrive at a value of 8%.

166
Q

What are the main things that influence a yield?

A
  • term certain
  • covenant strength
  • location
  • rent
167
Q

Talk me through your rental comparable evidence

A
  • Best comp 91-93 Queens Road - Although the property was in a better location, the specification was standard compared to the subject developments new B1 space. I assumed that my property would be let for a term of around 5 years and would achieve £23 psf as it was of a similar size too.

I did not think that the subject development would achieve prices of £27 psf and £29 psf as these were in a much better location and although the standard of the subject development was higher, I did not think that being in an area away from the main street surrounded by residential and industrial would be as desirable.

Further the units were smaller than my unit which usually reflects a higher value per sq ft.

168
Q

Why did you value the commercial element into perpetuity if you thought the property would be let for 5 years?

A

I felt this was the most appropriate method for the subject development’s units as there was not much new build office space in the area.

I felt it was appropriate to value it into perpetuity as I felt the units would command leases of 5 years and without knowing the exact lease lengths this was a good way to work out value of a future asset.

This is also standard market practice at my firm.

Also although important, the commercial element made up approximately 12% of the GDV.

169
Q

Why did you allow for 6 month void and a 6 month rent free incentive?

A

The market was experiencing 6 months Rent Free Periods and local agents were seeing offices on the market for a maximum of 6 months.

170
Q

You did it for internal purposes but followed the red book – if Bridge Property wanted to sell the site, would they be able to rely on your valuation?

A

Yes they would be allowed to rely for disposal purposes but not for loan security.

171
Q

It says that your subject development offered greater amenity space but no externals has been considered in your appraisal?

A

o So by amenity space I mean the individual amenity space of the apartments and houses, such as every apartment and house having large balconies or patios.

o The reason why we haven’t accounted for external space is due to the fact that the subject site area is small and there wasn’t a considerable amount of space for external works and therefore the cost will be minimal

o ALSO the client informed us not to take into consideration externals apart from the Section 106 pathway.

172
Q

Why did you use 5% change in the GDV compared to a 10% increase in the Build costs in your sensitivity analysis?

HOT TOPIC

A

Useful to illustrate just how much more sensitive the development was to a smaller change in GDV compared to a larger change in Build costs which allowed for my client to be more prepared in fluctuations in the market were to occur.

  1. How sensitive the model is
173
Q

What are preliminaries and how did you account for them?

A
  • These are the costs of site specific overheads of a development.
  • They are included in the BCIS cost figure and as a consequence I assumed there would not be any extra cost.
174
Q

What are the different types of contingency?

A

Constructors- this is when there are unknown costs in the development relating to the construction eg. build costs rising, or the constructors missed out a crucial element.

Developers contingency - For anything that was not in the initial bid from the contractor, you will have to spend developer contingency money.

The most common cause of developer contingency expenditures deals with incomplete plans.

175
Q

What was your contingency, a contractors or a developers? What did it allow for?

A

Mine was a contractors contingency which allowed for costs that are not anticipated during the course of construction eg. escalation of build costs or a potential delays.

176
Q

How would you differ your contingency in 2020?

A

I would increase the contingency given the potential risks that 2020 is producing eg:

  • length of time to build
  • Brexit implications for an increase in build costs.
  • Both corona virus and Brexit implications for limiting restrictions on labour
177
Q

I notice there are cracks in the buildings, what did you do about that?

A
  1. I took photos and noted the cracks
  2. After confirming with a building surveyor I identified it could be Heave as they were vertical cracks.
  3. I informed the client
  4. Made a note in the report but due to the fact it was to be demolished it did not impact my valuation.
178
Q

What is Heave?

A

Expansion of Ground beneath the building.

Could be caused by tree removal or subsequent moisture build up in the soil

179
Q

What is the type of construction?

A

Solid Brick wall

180
Q

When was it built?

A

1960s

181
Q

Drainage details?

A

Lack of drain pipe down the side of the building which explains the stains

182
Q

What defects did your property have

A
  • Cracks in the Brickwork (suspected Heave)

- Staining on brick - from the lack of drain pipe from the guttering

183
Q

What did you consider prior to inspecting the property?

A
  1. Health and Safety
    RISK ASSESSMENT - PPE, Lone working, Safe person, concept
  2. ARRANGING ACCESS & How I was going to get to the site
  3. DUE DILIGENCE.
    - Planning docs
    - environmental report
    - flooding risks
    - land registry
    - client docs
  4. RESEARCHED COMPS so i could go and inspect
184
Q

What did you consider whilst inspecting the property?

A
  1. LOCALITY
    - public transport
    - surrounding mix
    - amenities
    - situational - railway lines
  2. EXTERNAL
    - Photos
    - Identified defects
    - construction
    - roof
    - windows
  3. INTERNAL
    - I did not measure
    - relied on clients inputs to establish a demolition cost
    - Photos
185
Q

What profit did you adopt? Did you not consider to do a blended profit?

A

17.5% on GDV.

I felt that because the majority of the scheme was residential, it was more appropriate to basis the level of developers profit on the residential element.

Client wanted the majority of the focus on the residential element.

186
Q

What makes a good investment comp?

A
  • Recent transaction
  • Similar in covenant strength
  • Similar length left on lease
  • Similar location
  • Similar spec
  • Rack-rented
187
Q

What lease length did you assume?

A

5 years.

Therefore valued it into perpetuity.

188
Q

Did you account for any rent free?

A

Yes I accounted for 6 months rent free in line with the market

189
Q

Did you account for business rates and letting costs for your commercial element?

A

I did not account for business rates as you are entitled to 3 months any way and they would be minimal.

I allowed for letting costs of 10% (of first years rent) for Agents Fees and 5% for legal fees.

For the big office schemes rates are a lot more important to factor in.

190
Q

Why did you assume the office units would all let at the same time?

A

For the purposes of the valuation I assumed the units would all let within 6 months.

I felt that would be achievable given they were new units.

191
Q

If you felt there was contamination what would you do?

A
  1. Recommend specialist advice and not provide a report until report issued
  2. Caveat my report
  3. Include cost of remediation in my report
192
Q

What are the weaknesses of the residual method?

A
  • highly sensitive
  • relies on accurate inputs
  • doesnt take into consideration timing of cash flows
193
Q

What is the purpose of an S curve?

A

To reflect when the money is actually drawn out during a development during construction

194
Q

Could you draw an S curve for me?

A

YES

195
Q

You build costs seem a bit light, how did you come to this conclusion?

A

I got my build costs from BCIS and cross-checked these with my building surveyors.

The reason they are lower than other flatted developments I have done is because they were low rise.

Top floor was not higher than 4 storeys

196
Q

Why did you take an average of house prices, and an average of flats? Why did you not input them separately?

A

This is a method I could have used.

However, I did not feel this would have a substantial difference as there was not a material difference between them and the units were split roughly 50/50.

197
Q

Your commercial comparable evidence feels a bit light, did you consider any micro locations?

A

I looked at Dulwich and Camberwell however I found there was a lack of evidence there too. I could have gone further afield to areas such as Brixton but they do have more of a prominent office market and I felt it was much better to:

  • Focus on my best comparable evidence of 91-93 Pechkam High Street.

And the investment evidence I focused on 41 Peckham High Street as although it was in worse condition, it was in a better location and it had a term certain of 4.5 years which is similar to what I felt would be achievable at the subject property and was of a similar covenant type strength.

Further I spoke to local agents and my in house agency and investment team to cross check my figures.

I felt it was more appropriate to stick to a reliable comparable in the Peckham area than to arbitrarily try and work out a discount rate from a surrounding office market such as Brixton which I felt was not comparable.

198
Q

In todays market would you do your sensitivity analysis differently?

A

I could adjust it to represent a bigger percentage change in the costs or GDV however, even in todays market I cant imagine the costs or GDV changing more than 10%, 5% So I would use the same percentages

199
Q

If you were valuing this development now how would your advice differ?

A
  • Increase the profit required as more risk
  • push out timings to allow for lock downs etc
  • increase contingency to allow for increase in build costs or delays
  • change my sensitivity analysis to demonstrate how the development would be different if COVID affected different markets
200
Q

You say you thought you would achieve a 5 year term, did you consider a break considering that is what your comparables say?

A

I did not assume a break at year 3 as for the purposes of valuing a hypothetical asset in the future it made more sense to assume that a term of 5 years would be achievable and to value it it into perpetuity.

201
Q

How did you come to the conclusion that the Woods Road Development was worse specification?

A
  • Higher density scheme of over 100 units
  • It was a new build development but had smaller balconies to the subject development, laminate flooring - the specification was basic.

However, I the subject site was a unique development with only 9 units and I assumed the developer would input a higher specification inline with the design.

I determined that the Woods Road development was of a much better location and therefore the spec difference would be offset as location is one of the main factors.

202
Q

What specification was your development?

A

I assumed that the development would be designed to the specification of the market norm - better than Woods Road due to the nature of the design.

Subject development:

  • Larger Balconies
  • Ensuites
  • Developer provided an order form to which for standards and I checked this with quantity surveyors who said this would be a higher standard than woods road. eg. oak flooring.
203
Q

Why did you determine the Catcher Building was of a higher specification?

A

The catcher building was firstly in a much better location right on Rye Lane.

  • It was not a low density scheme
  • contained top quality bathrooms and kitchen
  • large balconies with views over London.
  • built by an award winning developer.
204
Q

What construction was your development?

A
  • Cavity Wall construction
  • Double glazed windows with aluminium frames
  • Warehouse style
205
Q

Why did you use an average for houses and an average for apartments?

A

I am aware that either way can be done.

  • my company use both methods
  • roughly equal split between houses and apartments
  • did not materially impact costs and therefore did not impact the market value of the development.

At my company we use both methods and for this specific example due to the fact that there was roughly an equal split between houses and flats it did not materially impact the build cost and therefore did not materially impact the value of the development

206
Q

These houses are start on the first floor, did they have commercial underneath? If so did why did you still value these as normal houses?

A

The houses are supposed to be on the Ground Floor

207
Q

Your commercial was split into 4 units all of different sizes, did you take into consideration that the smaller one may command a higher rent per sq ft?

A

No.

Even though some of the units were smaller I did not believe they would achieve higher values due to the location. Given the lack of direct comparable evidence, I assumed it would be better to value them on a similar rate per sq ft and it would have been artificial to value on a higher value psf just because of their size.

208
Q

Can you talk me through your appraisal?

A
  1. ESTABLISHED GDV COMMERCIAL AND RESI
  2. DEDUCTED:
  • acquisition costs
  • construction costs
  • planning costs
  • marketing / letting fees
  • disposal fees
  • finance
  • profit
  • purchaser costs
  1. MARKET VALUE
209
Q

Do you know how trundle wheels work?

A

Wheeled along and click and every meter

210
Q

How did you measure the area of the building?

A

I relied on the clients area and then cross checked with promap

211
Q

Did you ask for any pictures of the inside of the building?

A

Yes received photos and confirmation from the client

212
Q

What was the planning use of the site?

A

B8 Storage and distribution

213
Q

Was the measurement of the building GIA or NIA?

A

GIA

214
Q

Did you look at what it would be worth if it was reinstated as B8?

A

Yes.

Looked at industrial land comparables in the area and inputted costs to arrive that the highest and best use was therefore residential.

Use as an industrial = £800,000

£2,780,000 per acre minus demolition costs.

215
Q

What age was the property?

A

1960s

  • Took photos
  • in house building surveying team
  • confirmed with the client.
216
Q

Was the policy for the area about affordable housing?

A

If under 10 units did not need to have affordable housing.

217
Q

What was the specification of the office?

A

It were of Grade A specification.

218
Q

If they are new build offices did you apply a premium to your second hand office space?

A

No as I thought the specification of the Grade B offices were in a lot better locations and I believed this would be offset against the specification.

219
Q

You used the comparable method to arrive at Market Rent, you have different sizes so did you not think it was more appropriate to value the smaller units higher?

A

In this case because two of the units were below 500 sq ft, that meant there would a restrictive pool of occupiers needing that space.

I therefore could not justify a higher rent would be achieved.

All the units are the exact same spec, all under 1,500 sq ft.

220
Q

How did you establish that office/ residential was the highest and best value?

A

Land comparables of vacant Industrial land in the area

221
Q

You valued this for internal purposes, could you expand?

A

The developer was looking at the land they owned to see which sites they wanted to develop themselves and which they wanted to sell.

222
Q

What could be done to bring the developers profit down?

A

Could pre-sell the apartments.

223
Q

Was it full or outline planning permission?

A

Full - architects plan, how big the units are etc.

224
Q

How has permitted development been affected by change of use 2020?

A

Find out whether you can change retail etc to resi in 2020.

Offices to resi - can change but depends on the area

225
Q

What was the specification of the office?

A

It was raised floors, exposed ceilings, double glazing, modern air-conditioning, light however they were not your typical Grade A office specification,

226
Q

If they are new build offices did you apply a premium to your second hand office space?

A

No as I thought the specification of the office would be offset against the better locations of the other offices.

227
Q

6 months is a short amount of time to sell all flats AND offices considering you think that the office market isnt great?

A

Yes because I assumed they would be marketed prior to the completion of the site.

228
Q

How did this site come about? What are internal purposes?

A

Strategic direction.

No reliance

229
Q

How did you calculate the Fee?

A

Fixed fee depending on how much time we felt was appropriate for the instruction.

230
Q

How would it have differed if you were doing this for loan security purposes?

A

It was inline with the Red Book.

  • Used BCIS - market inputs.
  • Comment on whether it was suitable for loan security purposes - VPGA 2
231
Q

What type of Due Diligence did you take regarding the railway lines?

A

Japanese Knotweed.

232
Q

What about tremmors from Railway which affects development?

A

Yes.

Within the planning permission:
Environmental Noise & Vibration Assessment

The level of noise / vibration = acceptable for development.

233
Q

What type of Due Diligence did you undertake?

A

Obtained:

  • CONTAMINATION
    • Ground Investigation Report
    • Environmental Risk Assessment - Confirmed no
      asbestos.
  • FLOODING
  • PLANNING
    • S106
    • CIL
    • PLANNING PERMISSION
  • LEGAL
    • Title register and Title Plan
    • Held Freehold
234
Q

What is s106?

A

An agreement made between council and developers to make a development acceptable.

235
Q

Did the development have a sustainability strategy?

A

Yes. Targeting BREEAM ‘Very Good.’

  • TRANSPORT
  • WATER
  • MATERIALS
  • WASTE
  • ENERGY
236
Q

Did you make an adjustment for the fact that Woods Road is over 100 units?

A

Not a numerical adjustment.

But took it as a reason for it to be less high spec.

237
Q

Did you make an adjustment to reflect the fact they were above office space?

A

No because there were offices on both Woods Road and Catcher building.

238
Q

You talk me about the new build premium, could you tell me about any RICS documentation ?

A

Yes.

RICS GN on Development of New Build Homes 2019

  • Underlying value (Second hand modern refurb or new build comps)
  • Apply a premium based on the spec of your development
239
Q

Do you think its always appropriate to apply a new build premium?

A

Depends

But I have always applied a new build premium.

240
Q

How did you ascertain it was a high spec?

A

Assumed it is fitted to a good market standard compared to the Woods Road development which was a large development, laminate floorings, small balconies etc.

I was provided with an order form with all the forms of the parts, ran this past my building team, who said this would result in a higher specification than the Woods Road development.

An example was that all the units would have oak flooring.

241
Q

How did you get from 8.11% to 8%?

How did you make that adjustment?

A

41 Peckham High Street (good standard, worse spec, but location much better than mine which offset).

Bad:

  • vacant
  • by the trainline

Good:

  • better specification
  • 41 PHS - above retail

Pushed yield out by 10 basis points, to account for worse location, pushed out another 10 basis points to account for train disturbance, bought yield in 10 basis points as comparable is above retail, made a final adjustment of 20 basis points as its brand new office space.

Then rounded to 8% when I capitalised it.

1 basis points = 0.01%

100 basis points = 1%

8.11% = 811 basis points

242
Q

How did you come up with £10,000 for the path?

A

A landscaping team we do a lot of work for and quantity surveying team

243
Q

How long can a comparable be considered relevant for?

A

Depends.

244
Q

Are you aware of the new 2020 use classes? What is the equivalent of B1 under the new rules?

A

A1,A2,A3, B1 - all now Use Class E under the Town and Country Planning (Use Classes) Order 1987

245
Q

Are your comparables rack rented?

A

Yes

246
Q

What does rack-rented mean?

A

MR = PR

247
Q

Did the comparable land sites have office space?

A

Yes both of them had a small amount of commercial space.

248
Q

What kind of occupier did you assume would take the office space?

A

Independent local business

249
Q

What does the purchase costs on the commercial cover?

A

Stamp duty, agent fees, legal fees, VAT

250
Q

You are next to a railway, why did you not account for this in your build cost?

A

I believe that would be outside the scope of my ability.

There was a Noise & Vibration Assessment which stated there would be no hinderance in developing by a railway so I assumed no extra cost.

251
Q

Whats the difference between Mayoral CIL and Borough CIL

A

One for Cross Rail 2, one for local council infrastructure.

252
Q

What was your private sales rate per month?

Resi

and

Commercial

A

Assumed that the flats would sell 2 units per month and then 1 at the end.

All 4 commercial units would sell at the end

253
Q

What does IRR of 25.30% tell us?

A

FIND OUT

254
Q

What is an S curve and why is it used?

A

An S curve is a way by which finance is depicted to reflect when money is actually drawn out during a development.

255
Q

What is the difference between your sales agent fee and marketing allowance?

A

Marketing fees:

  • Cost of brochures
  • Cost of EPCs

0.5% of GDV both resi and commercial

Sales agent fees:
= 10% of first years rent
= 5% of first years rent

256
Q

What are signs for contamination and how would you allow for it in your valuation of a development site?

A

You would look for planning use, chemical staining, oil drums, brown staining on the concrete.

  1. Recommend specialist advice.
  2. Caveat report
  3. Insert cost of removal into appraisal
257
Q

What is the current loan to value ratio used by lenders?

A

60%

258
Q

When would you increase a contingency?

A

Market uncertainty?

259
Q

Did you value the existing use of the site? Why?

A

I took land comparables from VACANT industrial land surrounding the property and worked out the highest and best use value of the property would be the subject development.

The building was in poor repair and therefore the value of the existing use would have been minimal.

It was evident that the highest and best use for the site would be reflecting the extant planning permission.

260
Q

Tell me how you demonstrated all 5 global and ethical standards?

A

Trust - conflict of interest

Respect - clients and surveyors with respect

Integrity - verified the inputs

Responsible - for finding the inputs and

Service - providing a realistic MV and within the time frame

261
Q

What sq ft value was it for the demolition?

A

£5.7 psf

262
Q

What sq ft value was it for the demolition?

A

£5.70 psf

263
Q

What are the typical defects of this type of building?

A
  • roof leaks - especially as flat roof
  • blocked gutters
  • cracking in the brickwork
  • effloresce
  • staining on brickwork
264
Q

What does Japanese Knotweed in winter?

A

Leaves fall off and it looks more like a bamboo

265
Q

What other type of invasive plant species are there? What did they look like?

A

Himalyan Balsam
- green leaves with purple flowers.

Hogweed
- Flowers are white with green stems

266
Q

What were your clients objectives?

A
  • Provide an accurate MV
  • Meet Client’s time frame
  • Suitability as to whether the railway made it suitable for a resi and commercial scheme.
267
Q

How did you get to your stamp duty figure?

A
  1. 58% for residual land value

4. 05% for commercial

268
Q

What is LIBOR at the moment?

A

0.15

269
Q

What is a developers profit?

A

It’s made up of RISK - the amount of risk a developer is willing to take.

270
Q

What is a developers profit?

A

The amount of profit a developer wants from a development based on the level of RISK

271
Q

Can you just plonk in a Material Uncertainty clause?

A

No.

Case specific.

272
Q

Where does the RICS define competency?

A

PS 2

273
Q

Did you adhere to the serviced agreement?

A

I am aware its an agreement between my director and the bank and it sets out things such as lender action points, comment on environment etc.

274
Q

Your rents are very precise?

A

Yes they were quoting on a per annum basis so i broke these down to a sq ft analysis to apply to my appraisal.

Local agents gave me the per annum prices and i broke these down to sq ft

275
Q

What were the transport links in the area?

A

Peckham Rye station 0.3 miles

Queens Road Peckham Station 0.5 miles

276
Q

What are the buses like?

A

Good bus links into central london

Number 36 bus takes you right through to Victoria in under an hour.

277
Q

What were the local tenants?

A

They were a mixture of businesses including tech firms, advertising firms, Pr firms

278
Q

Were there any vacant units?

A

There was reasonably low vacancy rate in the area.

279
Q

I see all your comparables had gardens, did yours? If so, what size were gardens?

A

Did not have the specific details of the gardens however I assumed they would have gardens that replicate the market standard in Peckham

280
Q

Woods road scheme is over 100 units, do you think this may devalue or increase value?

A

I felt that the 100 unit scheme would be less desirable and of worse specification as it was a bulk scheme and therefore may impact values however, due to the presence of the railway line I felt my values could not achieve higher.

281
Q

How did you determine your voids? 6 months is quite short for a poor location no?

A

Yes however, I factored in that they would be able to market the offices prior to finishing the scheme and local agents said that based on this 6 months would be fine and given the low vacancy rate.

282
Q

Who were the tenants in your investment comps?

A

Consisted of a small tech firm, advertising firm, management consultancy firm

283
Q

Why did you not think the subject site would achieve similar tenants?

A

All comes down to location.

I noticed that when you came away from the main highstreets and away from Camberwell I felt it would attract local businesses rather than tenants with a strong covenant strength.

284
Q

How can you reflect risk?

A
  • Contingency
  • Developers profit
  • Timing
285
Q

How can you de-risk a development?

What about contractors fee?

A
  • Get purchasers

- Fixed contractors fee (as if a delay wont affect your build costs)

286
Q

What is the Tender Price Index? Used for CIL?

A

Used for adjusting estimates and budgets to different dates.

The BCIS All-in TPI is the most widely used example.

AM AAPPCC (9 decks)

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