Case Study Qs Flashcards
What is best consideration?
Best consideration is outlined in Section 123 of local government act and prohibits Council’s from disposing of land except by short lease for a consideration less than can be reasonably achieved.
Did you achieve best consideration for this scheme?
Yes, this was the best consideration that could have been achieved for this scheme. The residual land value coming out at £340k and being able to get £400k was a good result and best consideration.
Is it still less than best consideration based on the rising costs highlighted?
Best consideration was achieved in that It was the best that could be achieved for a social rent scheme with the increased construction costs. Without affordable housing, greater value could have been achieved but this was the best that could have been achieved for this scheme.
How did the nursery terminate the lease and on what basis?
The tenant was holding over, but due to the cost of living crises the tenant has ceased trading and handed the keys back.
Did you measure the building and on what did you measure it?
Yes. At this stage the intention was to refurbish the building so I measured using GIA as it is the standard practice for residential and could be used for marketing. But I also took additional measurements for IPMS2 which was to the internal dominant face.
What is the use class of the property?
Class E. To become apartments it will now fall under sui generis
How did you reach the conclusion that refurbishing the site was too costly?
I commissioned a building surveyor to provide a quote for roof repairs, gutter cleaning and address the damage from the water ingress and mould to help ensure the building wouldn’t deteriorate any further whilst we worked on the disposal. This alone was estimated at £60k and that was before any major refurbishments to covert the building to a new use. This ruled out refurbishment for internal use. I didn’t specify that the building had to be demolished to the resi bidders but knew it would be likely to make a scheme more viable.
When would formal tender be appropriate?
Formal tender would be required if there is strong interest in the land or property or there is a public interest so greater transparency and accountability is required.
Who did the initial valuation?
It was an internal appraisal by a colleague based on a hypothetical affordable apartment scheme for the property. They used BCIS and estimates for the inputs to provide an estimated value whilst options were considered.
What are the Housing Strategy objectives?
They include delivering low/no carbon homes
Focusing on high density development
Meeting the needs for social and affordable housing
Creating more construction jobs and boosting resident skills
What are the different affordable rent housing options?
Social rent is 50% of market rent
Affordable rent is at least 20% below
Intermediate rent is between social and affordable.
What are the affordable housing to buy options?
Shared ownership where a share of the property is bought and rent is paid on the rest and can staircase the rest over time.
Rent to buy which allows tenant time to save to pay the deposit for the property.
What informs the minimum term?
Usually financial requirement of the lender
What were the milestone dates of the successful bid?
Complete land transaction 10 months from successful bid
Build period 12-16 months after purchase.
These have slipped as the legals have taken longer than expected and they won’t be able to demolish the site until September due to timings for bat surveys.
What other low carbon considerations are there?
The scheme doesn’t use gas and utilises solar panels and green roofs and will have an APC rating of B at minimum.
Additional measures could have been renovation rather than demolition, but costly
Triple glazing and high insulation
Passivhaus design which maintains comfortable temperatures and use passive heat sources (big windows)
Zero carbon can be achieved through carbon offsetting with offsite options.
What was the source of the original valuation?
Colleague did an internal valuation based on a hypothetical scheme. Construction and demolition costs were very different.
How did you research construction costs?
Cross referenced the costs Southway provided with other recent schemes my colleagues were working on and sense checked them with an MCC quantity surveyor. Settled at just under £165psf (£164.81)
How do you quantify the social benefit relative to the missed receipt?
Local authorities unlike much of the private sector are not completely bound by commercial considerations. Whilst financial is a key factor when making decisions it isn’t the only one and we need to make a judgement on a case by case basis by accessing the needs of a specific area and population and the viability of the scheme. Due to the shortage of affordable housing in Chorlton I regarded the delivery of social rent apartments a greater priority than a higher capital receipt.
What is the HOTs guidance in RICS UK Commercial Real Estate Agency 2016?
It advises HOTs to consider matters:
Type of lease
Lease length
Permitted Use
Costs
Timings
Assignments and Sublettings
What did you take into account from the Estate Agents Act 1979?
I outlined the surveyor fees they would be required to pay.
I did not provide any misleading statements or falsely describe the property.
Define Social Rent
Social rent is usually around 50% of market rent.
What are the relevant low carbon regulations?
Building regs part L also sets the standards for improved efficiency of buildings which need to abided by.
Also Energy Performance Certificates currently have to be a minimum of E, but government has suggested increasing the minimum to C by 2030 so it is important for new buildings to be future proofed.
What risks are associated with Council leasehold approach?
Responsibility to ensure lease terms are adhered to. The Council as landlord would be required to step in if there were any issues at the property. This is a benefit in that it provides greater control, but can also result in additional time and expenditure to resolve them. Freehold can achieve a higher value or create more interest in the property, however not sure if this is relevant in this case due to the long lease term.
Why 24 months to evidence fully funded scheme?
Heads of terms agreed prior to new Labour government Autumn budget, unsure what to expect in terms of commitments to HE grant funding and does change.
Why would right to buy warrant an overage clause?
Under right to buy legislation, a housing association tenant can purchase the property at a reduced rate.
As the original scheme was valued and the land sold on a social rent basis, if an apartment is sold, an overage clause would ensure the Council receives a percentage of this additional receipt as it is above and beyond what was originally anticipated.
Why can’t the planning application be secured on appeal?
Because MCC as the landlord cannot go against the decision of MCC the Planning Authority. We can only progress with a scheme that is acceptable to MCC Planners.
What about security of the property in the interim?
The Council would maintain security of the property until completion of the lease. From that point, security is the responsibility of Southway.
How is grant funding allocated? For this scheme/ generally?
In the appraisal I applied £85k per unit Homes England grant. These were figures supplied by the developer which I sense checked with Housing colleagues.
How it is allocated depends on the RP. Some receive a lump sum from Homes England which they can select how to use, others have to bid for funding and Homes England make a decision on a case by case basis. Southway bid for the scheme and they need to provide proof of the funding in the next few months.
What is affordable housing?
Umbrella term for properties sold or let at less than market value. In Manchester to be classed as affordable rent or mortgage must not be more than 30% of the average household income in Manchester.
Different tenures include social rent which is usually around 50%/60% of market and affordable is around 80%. There is also shared ownership where they purchase a share of the property and then pay a subsidised rent on the remaining share and can staircase and purchase the property outright over time.
Why due to the size of the site would there be no affordable provision?
Legally required to have 20% of all units affordable, but only for schemes of 10 units or more. Due to the size of the site and with the scheme that is being delivered there was no guarantee it would meet the threshold.
What other grant funding is available?
There is also brownfield grant funding which is decided on a case by case basis. Can be around £20k per unit for a social rent project.
Why had the constructions costs risen?
Colleague took them from BCIS a few months previously which as an aggregate can sometimes be slightly out and should only be used as a guide. In this period, costs were still rapidly changing with the ripple effects of COVID still being felt so BCIS would often end up being slightly out of date as the costs were changing so quickly. Additionally, the constraints of the site contributed to higher demo and construction costs. Also, the scheme had high spec, particularly around the energy efficiency which likely contributed to higher than average costs.
What is the legislation around low carbon considerations?
Manchester aims to be Net Zero by 2038 and the UK by 2050 and pressure on the property sector to help support this.
Building regs part L also sets the standards for improved efficiency of buildings.
Also Energy Performance Certificates currently have to be a minimum of E, but government has suggested increasing the minimum to C by 2030 so it is important for new buildings to be future proofed.
What build cost did you use and what was in the original valuation?
Ended up using £164psf, BCIS was around £157 when the original valuation was done so across the whole construction this had a fairly significant impact. Southway’s bid was around the £170 region. We accepted a middle ground as RPs generally build to a good standard and considering the energy efficiency measures costs would be higher than BCIS
What caused the differences between Southway’s appraisal and your second appraisal?
I only ever saw the headline figures for Southway’s £300k appraisal. I applied the demo costs they provided , the main difference was build cost, Southway was around £170psf whereas I settled around £164psf. There was likely some slightly different figures and percentages taken for fees and other costs as well as different valuations for the units.
What assumption for fees did you make in your appraisal?
5% contingency
10% externals
8.5% professional fees - architect
1% sales agent
.5% legal fees
Most of these are fairly standard assumptions for this type of scheme. Could have used a higher contingency if the scheme was regarded as riskier.
What are externals?
Costs for works outside of the building itself. So would cover any public realm, landscaping, infrastructure costs. Constructions costs typically only cover the building itself.
What is the government’s approach to grant funding and how is it changing?
What are the wider regeneration and strategic objectives of the Council?
Outlined policy documents like the Our Manchester plan and Housing Strategy - increase supply of new housing, particularly affordable. A focus on sustainability, connected city. Where possible look, look to refurbish and repurpose properties. Key element for the development team is to contribute to Council financially through rents and capital receipts. Major focus and investment in district centres. This property is located within the Chorlton DC so would want to align with that which encourages higher density housing. The strategies helped to define what uses would be suitable.
Were any other uses considered?
Retail was considered and approved by planners. The tender pack did say we would be open to a scheme with retail on the ground floor, but it was never a focus for the scheme. More pressure on housing and Chorlton already has plenty of retail and F&B options, some of which are vacant so there isn’t huge demand for new spaces.
How would you describe the construction/build of the property?
Victorian, traditional brick building method and style.
What did you study for the desktop research?
I checked historic maps which dated the building to at least 1890.
I used GIS to measure the site and draw a red edge plan
Used CPAD to check what documentation we held for it - asbestos, lease renewal details
Used LR to confirm the Council’s ownership and requested the title register to see if there were any restrictions or issues.
What safety considerations did you take when visiting the property?
Inspected with a RICS surveyor colleague and we notified our manager of the visit and did a risk assessment which came out as low. I took PPE and wore a hard hat and sturdy shoes. Files stated likely use of asbestos, but had no existing issues.
The room, such as the top floor where the ceiling was falling away we left immediately in case asbestos had been disturbed. Photograph is from a later inspection.
Why is refurbishment the preferred option?
It’s a shame to see old buildings like these be demolished and fits in well with the surrounding area. Environmental cost of demolition and rebuilding is high, although arguably compensated by energy efficiency savings in modern buildings.
What is the local housing allowance?
It is housing benefits given to people renting from a private landlord to help with payment. The amount received is set by government based on the area and the bedrooms. 2 bedroom rates in Chorlton are £200. Average 2 bedroom rents are £700. Likely more now.
Why are long term tenant’s preferable? What is the alternative?
Long term tenants are invested in the area and have an interest in contributing towards that. Alternative is if it were buy to rent or student flats which can result in a more transient, short term tenant with less interest in the area and can create issues often seen in Fallowfield.
What is social value? What are the Council’s social value principles?
Looks at the broader non-financial impacts of projects and the social, economic, and environmental benefits of a project.
Social value is always considered in MCC decision making. Want to encourage better place making, job creation, educational opportunities, use of local businesses.
Why would affordable housing be more popular publicly and politically?
Huge pressure for more affordable housing options. Frequent criticism of new housing not having enough affordable options. Give more people opportunity to live here who might not normally be able to afford to do so.
What is a registered provider?
Housing associations - independent of the Council but part of the social housing system. Major source of new homes and trusted to deliver. They must abide by regulations and standard including quality, tenants, economic, neighbourhoods and community which make them preferred option to deliver affordable housing.
Would you consider a different method of sale next time due to lack of bids?
No, I think informal tender was still best option due to the needs of the site and the end user requirements. Perhaps to improve bids could open it up to other RPs.
Was the price disclosed in tender pack?
No, this was an error in the conclusion. I could have given a minimum price or communicated the constraints or potential costs to prospective bidders and illustrated that we were aware of them and would account for them in the bids and acknowledge they could effect viability.
Why would affordable offer a lower return?
Gross development value is lower as it is valued with a discount for social rent - nearly 50%. However, noticing recently that with the grant funding viability for affordable schemes has improved massively. Site in Wythenshawe came out lower for market due to the loss of grant funding. Market values not high enough to compensate for the loss in grant funding.
Why informal tender?
Meant that negotiations on the scheme and price could continue after tender process.
Could restrict end user which is not possible at Auction. Private treaty does not encourage competitive bidding.
What information was included in the tender pack?
Provided background to the property
Notes on its condition
Planning feedback - apartment, retail GF
Legal - stating no restrictions.
What might effect the term required?
Usually financial - developers often need a minimum term to ensure sufficient financial backing. Bank wouldn’t lend for a shorter residential lease.
What alternative options would have been considered if Southway bid was poor?
Open up bidding to other RPs outside of the Chorlton area
Look into disposal on open market
Disposal to non RP developer with affordable housing requirement.
What was the difference in demolition costs?
MCC had used estimate of £75k. Southway was £125k which was taken from a couple of quotes they had. We accepted this change after discussion with Council’s quantity and building surveyors.
How is the site constrained?
Demolition made difficult due to proximity to main road, could require partial closure and safety measures. Close to neighbouring houses and post office to south and west which meant additional measures to minimise disruption. Requires more specialised demolition techniques.
Why was the £340k too low for the client?
Even though it was the land value in the development appraisal for Southway’s scheme, the client still wanted a minimum of £400k. Valuation is also dependent on the price that can be agreed between two parties, client had a minimum and would have sought alternatives if couldn’t be met by Southway. E.g open market sale, other RPs or developers, remove affordable condition or change tenure so that it was affordable rent, not social rent.
Why did you say it was less than best consideration?
Used the phrase incorrectly. It was less than best in terms of what could be achieved with different tenures. It was best consideration for the scheme that Southway were proposing.
What due diligence was undertaken?
MCC needed to go through approvals for the scheme. Discussed it with colleagues in Planning, Neighbourhoods and local members.
Why such a long timeframe for grant funding?
Requested by Southway. They are required to bid for homes england grant funding, I think this is to cover all eventualities and any delays or changes to the process from government.
How did you protect your client’s interests with the HOTs?
Included overage provision.
Timeframes to ensure the scheme would go ahead or otherwise be forfeited back to Council.
What is an Overage Clause?
An arrangement made for sharing any extra receipt beyond what is originally expected in a pre agreed formula.
What overage clause has been agreed with Southway?
The HOTs have left it to be agreed. There will be a clause but the final formula will be agreed once we have the full details of Southway’s grant funding. If they get less than expected then the Overage will be amended to reflect that. Initially used a formula of est £22k per unit or 9% of sale price depending which was higher. Will be agreed in due course.
Were these right to buy or right to acquire?
These would be right to acquire, this was an error in my submission.
When should informal tender be used and what are the benefits?
Used when there is good interest in the property, potentially competing developers, for sensitive sites that require transparency.
Benefits are decision can be made on quality of bid, not just price, negotiations can continue beyond the bids, bids are not binding
