Case Study Qs

Question 1

Did you check and how did you find the planning consent?

Answer 1

Yes, I checked it via the LAs website - Sedgmoor planning portal after obtaining the reference number to form part of the development appraisal process.

Question 2

You note the affordable housing allocation was 30%? Was this additionality through the HB or part of the s106?

Answer 2

It formed part of the s.106. They required 30% affordable on site and limited clustering to 10 units.

Question 3

You state the site is only 1.92 acres in size? How could you fit 248 dwellings on this size?

Answer 3

This is a typo. It is supposed to say 19.2 acres.

Question 4

If they then sought the correct size from the DAS then what would your answer be?

Answer 4

Well this is the figure I was provided with. It could only relate to the parcel of land on phase 1 in the end.

Question 5

What do you mean by underwriting?

Answer 5

Underwriting in real estate refers to the process of evaluating and assessing the financial and risk-related aspects of a real estate investment opportunity. It involves conducting thorough due diligence, analysing various factors, and determining the feasibility of a project.

Question 6

What is a framework agreement and what are the advantages?

Answer 6

It is a running agreement between a buyer and a vendor. In this instance, a funder and developer. It can determine a number of conditions and obligations between the two parties to streamline and simply the contract/procurement process.

Question 7

Is 5 months the typical length it takes to complete a transaction?

Answer 7

Not always but its possible. In this instance we had several hurdles we needed to get past. there was a piece of land that fell within our title that was unregsitered. We also had initial pushback from IC regarding the price.

Question 8

What inspection process did you follow?

Answer 8

1. Market research - desktop view of comps and google maps to assess location and local amenity/surroundings
2. Inspected the site.
   - Personal Safety
   - Inspection of local area
   - Inspected the site and access points.
   - ensured I took a phone, notes, pen, had put the location and timings of my visit in my calendar.

Question 9

What is a greenfield site?

Answer 9

undeveloped land in an urban or rural area that has developed naturally.

Question 10

You reference your assumptions are based off comparable portfolios like the PRS Reit? What sort of assumptions?

Answer 10

Formed a basis for rental growth and occupancy/void assumptions. This is due to the nature of the asset. For our valuation yield assumption I used the yield sheets offered by the largest property agents such as Savills/CBRE/Knight Frank given it is a different geography. Also instructed a desktop from Savills.

Question 11

How did you obtain this information?

Answer 11

It is public information listed on the investor relations portion of their website.

Question 12

How many debt facilities do you typically have? Are these revolving?

Answer 12

Yes, the development debt facility is. Normally over a period of two years with an option to extend. We have 3 active development debt facilities and 2 investment debt facilities for Sigma PRS.

Question 13

What was the impact or difference in terms between the debt facilities?

Answer 13

I had to use a slightly lower gearing ratio however the margin rate was the same. The only benefit of this facility was that the period between PC and stabilisation provided a slightly lower rate to reflect the lower associated risk.

Question 14

What was the main purpose of your inspection?

Answer 14

Valuation.

Question 15

What are the ideal principles of comparable evidence?

Answer 15

• Comprehensive, more than one singular transaction
• Very similar, or identical to the item being valued
• Recent in terms of timing
• verifiable
• consistent with local market practice.

Question 16

What are the main sources of evidence for comparables?

Answer 16

1. Market evidence - direct transactions/public information/published databases/historical evidence
2. Indices such as MSCI formerly the Investment Property Databank
3. Automated Valuation models - can show trends but doesn’t account for specific characteristics of property.
4. Verification of Evidence

Question 17

Did you follow the hierarchy of evidence when conducting your assessment to derive the aggregate market rent?

Answer 17

Yes, I started with weighting further to direct comparables of new build stock before assessing the general market data.

Question 18

Why did you apply a discount to Bridgwater in your valuation?

Answer 18

• It was a slightly larger market achieving higher £psqft rents. Slightly more economically active per the ONS Database. However, Highbridge is slightly closer for Bristol travel commuters. Some of the rents in Highbridge were actually achieving higher headline rents. I did then add a premium as the stock would be professionally managed.

Question 19

How long after the transaction had occured would you class it as relative?

Answer 19

• no less than 12 months depending on how many comparables there are. I typically start 3 months but it depends on how concentrated the location is. For Highbridge I did past 12 months.

Question 20

What is an all-in cost basis?

Answer 20

It is our total costs inclusive of all proected finance fees/costs and associated transaction/purchaser’s costs.

Question 21

Were you not aware that your all-in cost was equal to your VPV before presenting to the client?

Answer 21

I was aware, but did not think the associated risk would prove problematic. The market was extremely competitive at the time with investors paying GDV and over for opportunities at times.

Question 22

When running the sensitivity analysis and being aware that in a downside scenario the returns were below the threshold, what did the client think?

Answer 22

I advised to the client that unfortunately this was the price we were told we needed to pay to match the competition and ultimately receive approval from their board to proceed. The downside scenario reflected a 50bps cap rate shift and 150bps increase to the reference rate (SONIA/Risk free rate).

Question 23

You said the total price needed to increase but one of your options was to reduce the price but increase the completion payment?

Answer 23

Yes, this has happened previously when working with our partners. Although it’s not where the VPV was equal to GDV, we have allocated a larger amount to the completion in order to progress while having a lower headline price than our competition.

Question 24

What type of conflict would you say you experienced when considering withdrawing from the bid?

Answer 24

A Party conflict. Although not acting on behalf of two clients, not performing on this transaction could impact our relationship and therefore access to future pipeline which is to the detriment of the client.

Question 25

Can you describe what sensitivity analysis is and why you would use it?

Answer 25

It is a form of analysis that determines how different values of an independent variable affect a dependent variable based on a set of assumptions. You use it to understand drivers and influences to certain values.

Question 26

What is an s-curve payment profile?

Answer 26

It is a cashflow forecasting method used in construction to predict that your initial costs will likely be lower and then ramp up during the development cycle with the final few months falling again. In the shape of an S.

Question 27

What was the planning issue that delayed completion to phase 2?

Answer 27

It related to an occupation condition that meant only the first 100 dwellings could be occupied unless improvement works at M5 Edithmead roundabout had been made. Countryside were working up a s73 to delete/amend the condition but it took ages to resolve. The s73 increased this condition to 200 units which meant all of ours and the affordable units could be occupied whilst CP worked up another s73 to remove the entirety.

Question 28

What is a s73 application?

Answer 28

allows for planning applications to be made for the variation or removal of a condition on an existing planning permission.

Question 29

With the issues relating to ph2. Did you regularly inform the client of what was happening?

Answer 29

The client was always aware of what had caused the delay and the process to mitigate our risk exposure. Through the senior communication channels we made the client aware of the position we were in when approaching the 2nd phase. Since funds had already been allocated and drawn down and the original approval from the LPs was based on an acquisition of 87 units they decided to take a view.