Dev Ap Level 2 - Mixed Use Central London Flashcards
Describe the building?
solid brick construction under flat roof
Post war building with a basement, retail unit at ground floor plus 5 storeys of offices
Exterior - Neoclassical
symmetry, pilasters, exposed brick, stone façade, central arched entrance
Interior - dated offices, internally tired and not in line with current market trends
Talk me through your appraisal
The Client owned the property and I was doing a development appraisal to assess the profitability of the scheme
I appraised the property on two scenarios
the first based on the full refurbishment of existing
second with inclusion of additional storey
I analysed the rental values of the office and retail unit
I capitalised the rental income accounting for rent free periods to arrive at a GDV
deducted all necessary costs from GDV to arrive at a profit
In conclusion the associated costs of adding an additional storey was not reflected in the profitability of the scheme.
Full refurbishment of existing was considered the most viable option and met the clients target profit.
What is profit on cost?
tells a developer what the return is on the development project and so will indicate development viability.
Profit on Cost = (Gross Development Value - Total Development Cost) / Total Development Cost * 100
What professional fees did you assume?
12%
why was your profit and cost so low?
because it was a refurbishment so clients profit on costs was lower than market for development
what finance rate would you assume today?
8.5 - 9% base of England base rate plus premium 3-4%
if you were going to put mezzanine finance into the appraisal would you also assume 8..5%?
No, higher rate
used secondary to senior debt and therefore more risky as second charge and that is reflected in the rate
why was the first scenario the most viable?
As the expense of adding an additional storey did not meet the clients profit target.
why did you provide a range for profit and cost?
as we were analysing to different scenarios
what are the trends for offices in central london
fight to quality, occupier and investor sustainability credentials
What were the associated costs of adding an additional storey
finance costs, build costs, professional fees, longer planning process.
What build costs did you assume for each scenario?
£330 for first scheme
£380 for additional floor
What was your contingency and why?
5% because it was a refurbishment, low risk project and planning permission was not contentious.
Why did you not choose the second scheme as surely that would have given a greater GDV?
Adding more space at a capitalised rent would have given an increase in GDV however taking into the consideration of structural costs of adding another storey, construction time, professional fees and planning meant that it did not meet client profit target.
Why did the client want a higher profit for the second scheme?
more risk involved - costs, planning, time frames
