Development Appraisal

Question 1

What is the difference between dev appraisal and residual appraisal?

Answer 1

dev appraisal measure the profitability and viability of a scheme.

Residual appraisal assesses the value of the land

Question 2

What RICS guidance is there on development appraisals?

Answer 2

RICS guidence note on valuation of development property 2019/

Question 3

What is contingency and how is it worked out?

Answer 3

contingency takes into account the risk of a development. typically between 5 and 10%.

Question 4

What is a S106 payment?

Answer 4

This is a planning cost which is enforceable by the LPA and are site specific and negotiable.

Question 5

What is a CIL payment

Answer 5

CIL is the community infrastructure levy. It is levied via a charging schedule on the net increase in floor space (GIA) for a new build. It is a cost to the developer to contribute to the construction of infrastructure such as schools and local areas.

Question 6

What is the aim of CIL?

Answer 6

to speed up and standardize the planning process between LPA and developers.

Question 7

How do you determine the developers profit?

Answer 7

Gross development value - total costs - land value = profit.

Question 8

What is typically included within the total development costs

Answer 8

build costs, contingency, S106, finance, professional fees, marketing and legal fees

Question 9

What would a developer need to borrow finance for?

Answer 9

purchase the land
construction
holding costs

Question 10

What are the main methods of development finance? explain

Answer 10

debt finance (taking a loan) and equity finance (selling shares and releasing equity)

Question 11

What is a S278 payment?

Answer 11

It is a payment made to the LPA for highways works

Question 12

what would you expect to see in professional fees

Answer 12

Architect fees, planning consultant, project manager, structural engineer

Question 13

How is time accounted for within a development appraisal

Answer 13

through finance

Question 14

When is CIL payable and what is CIL chargeable on?

Answer 14

on the date of the assumed development commencement date

Chargeable on anything additional to a development or anything new development.

Question 15

what is the difference between development appraisal and residual valuation

Answer 15

a development appraisal will typically provide the profitability / viability of a scheme using client inputs and a residual valuation will provide the land value using market inputs.

Question 16

What is overage/ clawback

Answer 16

this is where the seller may be entitled to receive some of the profits after completion if a specific condition is satisfied.

Question 17

When is VAT payable?

Answer 17

on professional fees

Question 18

What are the current rates of finance

Answer 18

bank of england base rate - 4.25%
SONIA - is a choice of interest rate.

Bank of england base rate plus premium

Question 19

What is the new MCIL?

Answer 19

mayoral CIL
MCIL applies to all planning within london.
There are 3 bands.
band 1 - £80 psm
Band 2 - £60 psm
band 3 - £25 psm

Question 20

what are the three forms of sensitivity analysis

Answer 20

simple analysis
scenario analysis
monte carlo simulation

Question 21

what is simple sensitivity analysis

Answer 21

analysis of key variables such as yield, GDV, build costs, and finance rate

Question 22

what is scenario sensitivity analysis

Answer 22

change scenarios for the development content/ timings/ costs such as modifying the design.

Question 23

Which sensitivity analysis did you use and why?

Answer 23

simple. analysis of the yield and comps.

Question 24

what are the percentages:
profit on cost?
Profit on GDV?
contingency?
prelims?
marketing costs and fees?
Professional fees?
Letting fees?

Answer 24

profit on cost - 15%
Profit on GDV 15-20% depending on risk
contingency - 5-10%
prelims?
marketing costs and fees - 1-2%
Professional fees - 10 - 15%
Letting fees - 15%

Question 25

Talk me through your development appraisal in Tottenham

Answer 25

1 - updated viability/ profitability assessment on two options - refurb or redevelop.

2 - Options included redevelopin the site or refurbishing the existing houses.

3- Calculated my GDV from comparable searches in the market.

4 - I then worked out my TDC using BCIS and building surveyors within the firm which i took off my GDV

5 - I then took off the target profit on cost of 20% which was advised by the client.

6 - which generated a land receipt

8 - allowed me to then inform my client so they could assess which was the most viable strategy to them.

Question 26

Talk me through your development appraisal in maidstone

Answer 26

1 - updated viability/ profitability assessment on potential development scheme in maidstone.

2 - I analysed comaprables to determine the GDV of the site.

3- worked out the TDC using build costs, professional fees, finance etc.

4 - client wanted me to target of 15%. Which I took off the GDV.

5 - i then provided the client with the land receipt.

6- the client reviewed to see if the scheme was viable.

7 - client assessed the scheme to be viable to build the houses.

Question 27

How do you calculate finance?

Answer 27

assume 100% dept finance
Adopt the S curve to calculate finance - build costs.

Question 28

Talk abotu the S curve? How does it work and what is it?

Answer 28

method of calculating finance
reflects when money tends to be drawn down.
Usually shaped as an S. So with acquisition your finance costs are high, then with construction phase your costs are high, then for the holding period developers sometimes need finance whilst the properties haven’t sold as of yet.

Question 29

How do you calculate finance for purchase of the land and holding costs?

Answer 29

straight line basis.

Question 30

why wouldnt a scheme be feasable?

Answer 30

If your costs are too high and there is no profit.

Question 31

Why is a sensitivity analysis important?

Answer 31

it measures how a small change in the inputs can have a huge impact on the outcome.
Kind of measures the risk.

Question 32

What were your inputs for tottenham?

Answer 32

client inputs were floor area, profit on cost of 20% and build costs.

Question 33

What were your inputs for maidstone?

Answer 33

client inputs were targeted profit on cost of 15%,, build costs, floor area, number of units, sales prices

Question 34

What are the main disadvantages with using Argus?

Answer 34

it assumes 100% debt finance.
accuracy lies on high level of infor and inputs
Volatile to a small change in inputs
oversimplifies finance

Question 35

What is the main difference between an explicit and implicit assumption?

Answer 35

implicit assumptions are hidden, and explicit assumptions you can see - so for example, using argus is implicit as you can’t see the calculations that have taken place, but a DCF is explicit because you can see the calculations

Question 36

What is the main difference between a discounted cash flow and the basic residual method?

Answer 36

a DVC take into account timing of cashflows gives rise to more accuracy.

Question 37

What is the statement on dev appraisal?

Answer 37

Guidence note on valuation of development property 2019

Question 38

Why would you use profit on cost rather than profit on GDV?

Answer 38

profit on cost is more accurate.

Question 39

What is your choice of interest rate when carrying out a Dev Appriasal?

Answer 39

check with client if an agreement is in place
in line with BOE base rate plus a premium.
Check across previous development appraisals