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APC > Development > Flashcards

Development Flashcards

1
Q

What is a development appraisal?

A

A tool to financially asses the viability of a development scheme

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2
Q

What market conditions might you highlight to a client when undertaking a DA

A
  • High borrowing costs impact upon return
  • pull back of borrowing products
  • Build costs remaining high
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3
Q

What are the outputs of a development appraisal?

A

Viability of different uses
Profitability
Sensitivity
Value

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4
Q

What are the current unit costs for the West Midlands?

A

BCIS- Estate Housing
Lower- £ 118
Median - £139
Higher- £152

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4
Q

What is included in site preparation?

A

Demolition
Remediation Work
Provision of Service
Levelling
Site Clearance

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5
Q

Do you assume site preparation costs?

A

No- need a contractors cost plan, however may reflect a high contingency

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5
Q

What planning costs do you apply?

A

S106
CIL
Affordable Housing
Section 278
Planning Consultant
Specialist Reports

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5
Q

General steps of a development apprasial?

A

Depends on the purpose, viaiblity would be
GDV
-
Costs ( Site Prep, Planning, Build Costs, Professional Fees, Contingency, Marketing, finance)
= Land Value ( Compare to BLV)

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6
Q

What are building costs and how do you get these?

A

Total cost of building works
Souce:
BCIS
Client
Quantity Surveyor cost plan
Building Surveyor
Spons Architects and builders price book

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6
Q

Where does BCIS get their data from?

A

Obtained from BS and QS sources, recent contract prices/tenders agreed

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7
Q

Pros and Cons of BCIS

A

Advantages:
- Widely used and respected
- Provides good coverage of construction costs

Disadvantages:
- Can be out of date
- May not be relevant to your specific project
- Limited control over data

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7
Q

What are the different inputs BCIS use

A

Gross Internal Area

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8
Q

What are the time periods BCIS use?

A

Backward facing

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8
Q

What is commonly included in Professional Fees?

A

Architects - account for highest proportion
Project Managers
Structural Engineers
CDM principle designer costs - Health and Safety responsible

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8
Q

What are contingency costs?

A

Account for the level of risk and likely movements In building costs

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8
Q

What are marketing/sales fees?

A

Marketing Budget
EPC coosts
NHBC Warranty

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8
Q

What choice of interest rates are there for development finance?

A

SONIA- Stering Overnight Index Average
Bank of England Base Rate plus premium
Developer own

8
Q

What are the 3 elements developers can get finance on? and how are they shown?

A

1) Site Purchase (inc purchasers costs)- Straight Line- Compound Interest
2) Construction costs- S curve- half costs over the length of build
3) Holding costs to cover voids- Stright Line- Compound interest

8
Q

What is the method of caluclation for development appraisal on argus?

A

Assume 100% debt finance

9
Q

What are the two methods of development finance?

A

1) Debt Funding- Money from a bank or institution
2) Equity Funding- Selling shares in a company, own money or JV

9
Q

What are the levels of Debt Funding

A
9
Q

What is a swap rate?

A

The market interest rate for a fixed rate or fixed loan term

9
Q

What are other methods of arranging finance?

A

Joint Venture- 2 or more parties join to develop
Forward Sale- Where completed schemes are presold to either an investor or developer

9
Q

What do you understand by overage/clawback?

A

Arrangement for sharing of recipients over and above original profits expected, shared between vendor and developer in pre arranged apportionment.

e.g. Plot Sales- where a developer acquires land for residential development for a fixed sum and agrees to pay the landowner a further sum if the aggregate revenue realised from the residential plot sales exceeds a certain threshold figure.

10
Q

Is VAT payable on professionally fees?

A

Yes

10
Q

Profit Erosion Period

A

Length of time it takes for development profit to be eroded by the holding charges following completion of the scheme- due to interest charges and if the scheme is loss-making

10
Q

What are the three types of sensitivity analysis?

A

Simple sensitivity of key variables
Scenario analysis
Monte Carlo- probability theory- software such as Crystal Ball

10
Q

What is the key RICS document for Valuation of Development ?

A

RICS Profesional Standards: Valuation of Development Property 2019
Supplements the International Valuation Standard for Dev Property

11
Q

What key points does the RICS Profesional Standards: Valuation of Development Property 2019 cover?

A

Best practice avoids reliance on one approach - should cross-check

12
Q

How might you cross check a development appraisal

A

Recent Sales transactions ( comparable)- Prices

13
Q

What other documents might you make reference to in your development examples for viability?

A

RICS Professional Standard: Financial Viability in Planning: Conduct and Reporting 2019

14
Q

What will influence the level of profit required by a developer?

A

Depends on the level of risk
If scheme is low-risk (or pre-let / sold) a lower return may be required
Current riskier market conditions means the percentage of profit required has

15
Q

Why is profit on cost a more reliable method of measuring developers’ profit than profit on GDV?

A

GDV is subject to more variation

16
Q

What variables would you typically conduct a simple sensitivity analysis on?

A

GDV
Build costs
Finance rate

17
Q

What variables would you typically conduct scanrio analysis on?

A

Scheme content
Timings
Phasing
Design

18
Q

What does the RICS Professional Standard: Financial Viability in Planning: Conduct and Reporting 2019 cover?

A

Mandaotry
- Guidance on reporting of benchmark land value
- Must provide a sensitivity analysis

19
Q

What is a Benchmark Land Value

A

Existing Use Value plus a Premium

20
Q

What is the premium in a BLV

A

A reasonable incentive for a land owner to bring forward land for development while allowing a sufficient contribution to fully comply with policy requirements

21
Q

What is typical professional fees would you assume?

A

10-15%

22
Q

What is typical contingency fees would you assume?

A

5-10%

23
Q

How do you value a random strip?

A

1) Refer to Stokes v Cambridge
- Where ransom value was 1/3 of the development site ( Having already deducted profit and costs)
e.g Land is worth 4.5million

APC (33 decks)

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