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RICS FINAL INTERVIEW > Case study (Ready) > Flashcards

Case study (Ready) Flashcards

1
Q

What is the difference between a development appraisal and a residual valuation?

A

Development appraisal is client inputs

Residual valuation is market inputs

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2
Q

Which did you carry out in this instance and why?

A

Development appraisal, because my Director had defined inputs

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3
Q

How did the Queen’s speech impact on the property market?

A
  • Proposed reform to planning system
  • Confirmed scrapping of ground rents
  • New Building Safety Regulator
  • Renter’s Reform (private sector)
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4
Q

What are the potential considerations for a brownfield vs greenfield site?

A
  • Potential contamination
  • Requirement for demolition
  • potentially longer construction timescales
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5
Q

What are rights of light?

A

A form of easement that gives a long-standing owner of a building rights to maintain the level of illumination

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6
Q

How would you describe Kingston?

A
  • An ancient market town on the banks of the River Thames
  • The administrative centre of RB KUT
  • 23 minute train ride from Waterloo
  • Within easy reach of Kew Gardens, Bushy Park and Hampton Court Palace
  • Vibrant shopping district with both independent and high street brands
  • Outstanding restaurant scene
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7
Q

How did you value a lease extension?

A
  • I advised my Director of the need to seek a lease extension given that there only 47 years remaining
  • Once my Director had agreed a figure, I included this within my development appraisal
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8
Q

Talk me through the formal bidding process, was it formal or informal tender?

A
  • The site was sold by informal tender
  • An information pack was issued
  • Bid deadline was set as 20th November 2020
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9
Q

How did you determine that 15% profit on cost was an appropriate metric?

A
  • My Board outlined that this was the hurdle rate that they would require in order to proceed with this project.
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10
Q

What factors would impact on the level of profit required?

A
  • Whether the site has planning permission
  • The use class
  • The size of the deal
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11
Q

What is a PTAL rating?

A

Public Transport Accessibility Rating

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12
Q

What is the importance of a PTAL rating?

A

Common tool used to assess the accessibility of a site in relation to public transport

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13
Q

How would you say the site is situated?

A
  • Situated within RB Kingston Upon Thames
  • 10 miles south west of Central London
  • Enviable position on the banks of the river Thames and centrally located just 5-minutes walk to Kingston town centre
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14
Q

What was the proposed specification of your development?

A
  • New build
  • Wood laminate flooring
  • Fitted kitchens with built in appliances
  • Double glazing
  • Fully tiled bathrooms
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15
Q

How are rights of light established?

A
  • The prolonged enjoyment of light (usually 20 years)
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16
Q

What are the potential issues if rights of light are established?

A

The Court can serve an injunction on a development, or it can award compensation to the claimant

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17
Q

What is the famous case surrounding rights of light?

A

HKRUK vs Heaney
- Redevelopment where Heaney claimed after the development had been built and the Court held that HKRUK would have to make alterations to their building based on the impact of the development on Heaney’s light.

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18
Q

Why is flood risk important?

A

It can impose restrictions on development

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19
Q

Why is flood risk particularly important for residential development?

A

If a site is in a flood zone then you will not be allowed to build habitable floorspace at ground floor
- Requirement for sequential test

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20
Q

As the site didn’t have planning consent, could you discuss the potential risks associated?

A
  • Not obtaining planning consent
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21
Q

How did you conduct your conflict of interest check?

A
  • I enquired with the various consultants to ensure that they were not acting for any other developers with regards to the proposal site
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22
Q

What would you have done if you had discovered a conflict?

A
  • I would inform my client (Director)

- I would then inform the consultant that we would not be able to work with them on this project

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23
Q

Why did you not use asking prices?

A
  • There was enough transactional evidence for me to make an informed opinion on value
  • Asking prices would not reflect the price that a willing purchaser would be prepared to pay
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24
Q

How did you apply a “subjective judgement” to values? Is that prudent?

A
  • Ideally a valuation should be as objective as possible
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25
Q

How did you assess the specification of the units compared to the proposed scheme?

A
  • Looked at the size / aspect of the units
  • Looked at the quality of finishes/fittings
  • Looked at the amenity provision
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26
Q

Did you identify a quantifiable premium for river views using your second hand evidence?

A

-

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27
Q

Did you reflect a premium for upper floors compared to lower?

A

Yes, based on comparable evidence I was able to establish a floor premium of between £5,000 - £10,000

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28
Q

What does BCIS provide?

A
  • Information on build costs
29
Q

What do the build costs on BCIS include?

A
  • Contractors OH&P

- Base Build Cost

30
Q

What are the issues associated with BCIS?

A
  • It is generic
  • It can be outdated
  • It does not include an allowance for any abnormals
31
Q

What is the all-in TPI?

A
  • An indices that measures the movement in construction prices that are agreed,
  • Typically used for adjusting cost estimates to different dates
32
Q

When calculating your finance costs, did you reflect any nominal costs for your equity?

A

No

33
Q

What is a “Golden Brick” structure?

A
  • A mechanism which allows the housing association to purchase the affordable housing element of a development without triggering a VAT payment on the land
  • In this instance, the AH provider agreed to pay 20% of the value at “Golden Brick”
  • HMRC advise that a partially completed dwelling is one which is at least one brick above foundation level - “The Golden Brick”
34
Q

What are the benefits of a “Golden Brick” structure?

A
  • Allows housing association to save on VAT

- Allows developer to cash flow affordable housing revenues through construction, lessening equity requirement

35
Q

Did you make any deductions from your GDV?

A

No.

36
Q

Why is a sensitivity analysis important for development appraisals?

A
  • Allows developer to ascertain the level of risk associated with a shift in varying elements of an appraisal such as build costs or sales values
37
Q

Did you assume differing levels of profit on cost for your affordable sales and private sales?

A

No.

38
Q

How did you run your development appraisal? Excel or Argus?

A

Argus.

39
Q

What are the benefits of using Argus?

A
  • Detailed modelling and appraisals are output into a format that a large proportion of the property industry can interpret
40
Q

What are the benefits of using Excel?

A
  • Formulas are shown and so you can check your working

- Can be bespoke to a company

41
Q

What are the advantages and disadvantages of using Argus / Excel?

A
  • Argus is expensive

- Argus hides formulas and so you cannot check your workings, often leading to mistakes

42
Q

Where did you source your maps / plans?

A

LandInsight, in which we pay for access to the OS maps

43
Q

Did you have rights to reproduce them?

A

a

44
Q

How did the road factor into the appraisal?

A

It did not, the proposed plans assumed that the road was untouched.

45
Q

How did you calculate your affordable values?

A
  • I engaged with affordable housing providers to obtain “package prices” for the proposed units
46
Q

Which affordable housing tenures did you assume?

A
  • Shared Ownership

- Social Rent

47
Q

What is the difference between the affordable tenures that you assumed?

A
  • Shared Ownership is an intermediate form of affordable housing
  • Social Rent is a Social Housing element
48
Q

Why did the larger units have a spike in values compared to smaller units? Is that common?

A
  • They were located primarily on upper floors and so attracted a premium
  • No, this is not necessarily common although you would usually expect to find larger penthouse units
49
Q

How did you establish your Section 106 values?

A
  • By reviewing the Signed Section 106 agreements for other similar developments in the locality and assessing the requirements that they agreed to
50
Q

How did you calculate your CIL?

A

With reference to Kingstons Charging Schedule and then using indexation

51
Q

Did you index your CIL?

A

Yes, I indexed it by using the indexation figure for the November preceding the date at which the Charging schedule was introduced, to the November preceding the date at which planning permission was anticipated (Nov 2021)

52
Q

Did you consider further metrics in addition to POC? Talk me through IRR and ROE?

A

Yes, Equity IRR - 18.02%
Profit on GDV - 13.04%
Return on Equity - 50.17%

53
Q

What is Internal Rate of Return?

A

The discount rate that would return a net present value of 0

54
Q

How would you calculate IRR manually?

A

By establishing a discount rate that achieves a positive NPV and discount rate that achieves a negative NPV and then interpolating between these figures

  • This is what Excel / Argus does but it runs lots of calculations very quickly to establish the result
  • Trial and error
55
Q

Can you tell me what guidance the RICS have provided on comparable evidence?

A

RICS Guidance Note on Comparable Evidence in Real Estate Valuation

56
Q

Do you know of any guidance that the RICS produced in terms of assessing the premium?

A

RICS Guidance Note on Valuation of Individual New Build Homes

57
Q

What are the issues with using ProMap?

A

Potential for human error in drawing the site boundary

58
Q

What are the issues with using BCIS?

A
  • It is generic

- Based on tenders and not what contractors have actually spent

59
Q

Which other estate agents did you speak to with regards comparable evidence?

A
  • Foxtons
  • Dexter’s
  • Jackson Stops
  • Hamptons
60
Q

Did COVID-19 have an impact on your approach to the valuation?

A
  • Altered my approach to the inspection in that I wore a face mas the entire time
61
Q

What are the limitations to using databases such as Molior, LandInsight etc?

A
  • Data can be outdated
  • Delay in updating of data to Land Registry
  • Important to speak with local agent to understand current market demand / appetite
62
Q

You say there there was a lack of comparable evidence, are you aware of any RICS Guidance on this issue?

A
  • You would refer to the Hierarchy of evidence
  • First look at contemporary, directly comparable transactional evidence
  • Then look at contemporary, similar transactional evidence
  • The latter is the approach that I adopted here
  • Guidance contained in RICS Guidance Note on Comparable Evidence in Real Estate Valuation
63
Q

I see you spoke with a number of agents, did their feedback vary and how did you account for that?

A
  • Feedback was similar

- Had there been differences, I would have challenged the data and asked for evidence to support their assumptions

64
Q

I see your site benefitted from river views, how did you establish what level of additional premium could be allocated to that benefit?

A
  • I assessed transactional evidence within the same buildings, looking at the difference in price achieved between those with and without river views
  • Was able to quantify that river views could demand a 10-15% premium which was applied on my pricing schedule.
  • Considerable examples of this in Kingston Riverside
65
Q

Have you seen any evidence in the market that floor level is having less of an impact?

A

No, I saw a premium of between £5,000 - £10,000 per floor in my comparable evidence, which I applied to my pricing schedule

66
Q

Who marketed the site?

A

JLL

67
Q

What was at ground floor level?

A
  • Flexible commercial space across both blocks
68
Q

What observations did you note on your inspection?

A
  • Good transport links
  • Vibrant business area
  • Strong local amenities
  • Potential for rights of light issues
  • Potential flood risk issues
69
Q

You talk about comparing the scheme using your internal cost database, can you give me some examples of other schemes you looked at?

A
  • The Makers, Hackney - 175 apartments 29 storeys
  • Quintain, Wembley - 500 apartments 15 storeys
  • Bethnal Green - 149 apartments 8 storeys

RICS FINAL INTERVIEW (21 decks)

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