Dev Apps Flashcards
What is a development appraisal?
A financial viability test of the ability of a development project to meet its costs. Typically the output is developers profit
What’s a residual valuation?
Establishes the site land value
GDV - development costs (including profit) = residual value
What do development costs include?
Construction costs
Site acquisition costs
Finance costs
Developers profit
What is CIL?
Community infrastructure levy. A charging schedule published by local authorities and is based on location and development type. Charged per m2
What’s a section 106 agreement?
Legal agreements between local authorities and developers which are linked to a planning permission
Aimed to balance the extra pressure created by a new development with improvements to the surrounding area
S106 requirements are set out in the adopted local plan for the area
What are the disadvantages of a residual valuation?
Inflexibility in dealing with the precise timings of costs and revenue
The main variables cannot always be estimated accurately
Small changes to the variables can have significant impact on the final residual value
What’s a sensitivity analysis?
Is where you re calculate the appraisal with different inputs. For example, an increase in build costs or a decrease in GDV to see what effect this has on the potential profit and residual value
Key market considerations?
Interest rates and inflation which result in the following:
- rising borrowing costs, depending on the finance model adopted could mean a lower level of return
- recent pull back of borrowing products, with lenders being more selective
- build costs have remained high
How are the finance rates calculated?
Bank of England base rate plus a premium. Premium is dependant on the lender as well as the developer and size and length of loan
What are the 2 types of development finance?
1) debt financing - borrowing from a bank or other funding institution
2) equity financing - selling shares in a company or using own money
What’s the typical rates for land acquisition and legal fees?
1.5% plus Stamp Duty
What are the typical finance inputs?
9.5 - 12% on debit and 3% on credit
Typical professional fees ?
5-10% depending on design stage plus £3,500 per dwelling for NHBC
Rates for contingency?
5% for a standard new built
7.5% - 10% for conversions / complex builds
What are the typical inputs for profit?
15-20% profit on costs or on GDV
Depends on the lender/ market and development risk
Typical input for external works?
10-30% of total build costs. Depends on nature of the site and extent of works
What was the GDV and residual value for Marsh Farm, Bideford?
GDV - £1.365m
Residual - £550k
What’s profit erosion?
The length of time is takes for the development profit to be eroded by holding charges following completion
What was the GDV and residual value for 31 High Street, Sturminster Newton?
GDV = £635,000
Residual = £165,000
For marsh farm, what rate per sq ft did you adopt for the build costs
£122 per sq ft
What’s the current bank base rate?
5.25%
What’s the formula for residual value?
GDV - development costs (including developers profit) = residual
In your SoE, you refer to a sensitivity analysis. Can you provide an example of when you have used this?
Some lenders specifically request a sensitivity analysis.
When preparing one, I would change a particular input, typically an increase in build costs or a decrease in GDV, which is then used to assess the effect on the level of profit or residual value
What do you mean by debit and credit rate?
Debit = cost of borrowing
Credit = earnings on savings
How might you analyse build costs?
Break overall costs back to base build so you can analyse like for like on BCIS
What RICS document is there regarding development?
RICS Professional Standard: Valuation of development property 1st edition
What steakholders are involved when you carry out a residual valuation or development appraisal?
The bank
The borrower
The valuer
The local community
Planners
What factors influence value?
The local economy & interest rates
General market conditions
Build costs
Specification of build
What CDP did you do for development appraisals?
I undertook a RICS online training course for development appraisals which included the processes involved and steakholders
Is Covid-19 still impacting developments?
Yes, build costs have remained high since Covid, along with the conflicts in Ukraine
What is included in BCIS figures?
Base build costs and preliminaries
How do BCIS obtain their figures?
Developers submit their build costs to BCIS
Do you think BCIS figures are reliable?
Yes to a certain extent as you can utilise location specific costs
However the sample sizes can be small and therefore doesn’t reflect the whole market
What pattern is typically used to reflect the finance on build costs?
An s-curve
What level of contingency did you use for marsh farm?
10%
What level of developers profit did you use for marsh farm?
20% profit on cost
What’s permitted development?
Enables the change of use of certain properties without the need for planning permission.
Eg Use Class E to C3 subject to prior approval
What is meant by the twin track approach?
A mix of both the comparable and residual method of valuation. At the end of the valuation, stand back and look to compare land values against comparable sites
Who is the current housing minister?
Lee Rowley
