Case Study Flashcards
What are comparable properties?
The properties used in the development appraisal to support the valuation of the subject property. These are used to reach the appropriate rental values.
Define Development Appraisal
A financial Appraisal of a development. In this case to calculate the residual site value or the residual development profit.
WHAT IS Gross Development Value- (GDV)?
GDV is the forecasted annual student income capitalised minus the operational costs which also capitalised at the same rate.
What is gross internal area (GIA)?
It is the measurement of a building on the same basis as gross external area- but excluding external walls and thickness.
Describe NDV?
NDV stands for the net development value minus the assumed sale costs in this case 6.8%.
What is the Capitalisation Yield and why have you used that particular yield?
The current annualised rent, net of costs, expressed as a percentage of capital value, after adding notional purchasers costs.
What is profit on cost?
The profit of the project expressed as a percentage of total development costs. In this case a target of 15% was sufficient.
Residual site value/ Residual Land Value definition
The amount remaining once the Gross Development Cost of a project is deducted from its GDV and an appropriate return has been deducted. This value then represents what can be paid for the site.
What are construction costs?
All costs of base construction and construction breakdown from project start to the earliest lease start date. In this case of the period of when construction costs are incurred is September 2023- June 2025.
Why did you choose to do a 15% profit on cost?
This percentage reflected the appropriate risk that my board of directors were willing to take.
How did you find out that the odeon was owned and occupied by Odeon?
I found the title plan and Title register. These indicated that the building was owned by odeon.
What is an onerous title restriction?
An onerous title restriction is an entry on the registered title which prevents disposition. An example of this could be a restrictive covenant which forbids the use of student on the land. If there was onerous title restrictions I would inform m director and await instruction.
What is vacant possession?
This is the right of the purchaser to exclusive use of the property on completion of the sale, any previous occupant having moved out.
What is an example of bad debt in the 3% void rate?
This could be rent not paid on time, a period where tenants do not pay for whatever reason…
What characteristics of the Exeter market made it at the top end of the prime regional market?
- Exeter University has a high ranking.
- Desirable destination for students
What are purchaser costs and why are your purchaser costs 6.8%?
Purchaser costs are those incurred by a notional buyer in the transaction and usually include :
Agents Fees- 1%
Legal Fees- 0.8%
Stamp duty- 5%
What do operating costs consist of?
-Staff Costs
-Maintenance Costs
-Marketing Costs
-
What is a design risk contingency and why is it 10%?
This is allowance for design costs going over budgeted amount
When do you use a BCIS Index?/ what is the BCIS Index?
This shows the expected inflation for construction costs
What is cil
CIL- Community Infrastructure Levy-
What is ROL Insurance and why is it capped?
ROL= Rights of Light. This is a form o easement that gives a long-standing owner of a building rights to maintain the level of illumination. This arises for a building after 20 years uninterrupted enjoyment of light. If right o light infringed dames can be awarded or an injunction can take place.
ROL Insurance transfers the financial risk from the developers balance to that of the insurer for a fixed amount.
The fact its capped means…
What is irrecoverable VAT?
Value added tax that can’t be recovered because the buyer purchased items for non business related activities
What is the development yield on rent?
What is the equivalent yield (nominal)
What is the equivalent yield (true)
What does IRR Stand for and what is it?
IRR = Internal rate of return. It is a method of calculating an investments rate of return. It is the rate of return at which all future cash flows must be discounted to produce a Net Present Value of 0. Its used to see what the total return of an investment opportunity is.
What is the difference between geared IRR and Ungeared IRR ?
GEARED IRR=
What is the difference between a development appraisal and a residual valuation?
Development appraisal= client inputs
Residual valuation= market inputs
What bidding process did you use?
There are 4 options of bidding process?
1. Private Treaty
2. Formal tender
3. Informal tender
4. Auction
In this case it was private treaty. My firm and the vendor were able to negotiate in our own time. The bid date set was internal from my directors as they had their own agreement with the vendor.
What factors would effect the level of profit required?
Whether the site has planning permission
The use class
The size of the deal
Why is flood risk important?
It can impose restrictions on the development
How did you conduct your conflict of interest check?
When advising the architects on the scheme I checked to see if they had done a scheme for other developers. This wasn’t the case
If there was a conflict of interest what would you have done?
I would have informed my director.
I would also inform the architect that I wouldn’t be able to ask for a scheme off them
Did you propose a premium for upper to lower floors?
No, however I used a premium for the 4 bed en suites over the 6 bed en suites which is reflected in the rental assumptions
What does BCIS provide?
Info o build costs
What do the build costs on BCIS INCLUDE?
Contractors OH&P
BASE BUILD COST
What are the issues Socrates with BCIS?
-It is generic
-it can be outdated
-it doesn’t allow for abnormals
What are the benefits of Argus?
Detailed modelling and appraisals are output into a format that a large proportion of the property industry can interpret
Where did you source your maps
Land insight and pro maps
How did you establish your section 106 values?
-by reviewing the signed section 106 agreements for other similar developments in the locality and assessing the requirements that they agreed to
How did you calculate your cIL?
I used the charging schedule from Exeter planning portal
Did you index your cil?
Yes I indexed it by using the indexation figure from the latest CIL Charge avaiable on the Exeter council website to when we could expect planning permission
Did you consider further metrics than profit on cost?
Yes,
Profit on GDV= 12.07%
IRR=17.98%
WHAT IS IRR
THE discount rate that would return a net present value of 0
How would you calculate the IRR manually
By establishing a discount rate that achieves a positive NPV and discount rate tat achieves a negative NPV and then interpolating between these figures.
Can you tell e what guidance the RICS have provided on comparable evidence?
RICS Guidance Note on Comparable Evidence in Real Estate Valuation
What are the issues of PROMAP
Potential human error in drawing site boundary
What are issues with BCIS?
It is generic
Based on tenders and not what contractors actually spent
What are limitations to using land insight?
Sometimes data is outdated.
Can be delay on the title
What observations did you note on your inspection?
- Close to other student schemes.
- on vibrant high street
-close to city centre
-a large footfall of students - good shops nearby for students
You said you created an offer letter? What does that consist of?
- Vendor address
- SITE DESCRIPTION-Description of the sit we want to bid for.
- PURCHASER-Details of the purchaser- background to our firm and what we’ve done previously
- SOLICITOR-Who our solicitor is and they’re address.
- PURCHASE PRICE
- DEVELOPMENT PROPOSAL
- DUE DILIGENCE THAT HAS BEEN CARRIED OUT- e.g. what QS we used
8.CONDITIONSe.g. our board approval
9.FUNDING- given on request
10.TIMESCALE
When you measured the site what tools did you take?
In this case I was only conducting an external inspection. So I used Promaps to get the GIA
