Development Appraisal Flashcards
What is the difference between dev appraisal and residual appraisal?
dev appraisal measure the profitability and viability of a scheme.
Residual appraisal assesses the value of the land
What RICS guidance is there on development appraisals?
RICS guidence note on valuation of development property 2019/
What is contingency and how is it worked out?
contingency takes into account the risk of a development. typically between 5 and 10%.
What is a S106 payment?
This is a planning cost which is enforceable by the LPA and are site specific and negotiable.
What is a CIL payment
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.
What is the aim of CIL?
to speed up and standardize the planning process between LPA and developers.
How do you determine the developers profit?
Gross development value - total costs - land value = profit.
What is typically included within the total development costs
build costs, contingency, S106, finance, professional fees, marketing and legal fees
What would a developer need to borrow finance for?
purchase the land
construction
holding costs
What are the main methods of development finance? explain
debt finance (taking a loan) and equity finance (selling shares and releasing equity)
What is a S278 payment?
It is a payment made to the LPA for highways works
what would you expect to see in professional fees
Architect fees, planning consultant, project manager, structural engineer
How is time accounted for within a development appraisal
through finance
When is CIL payable and what is CIL chargeable on?
on the date of the assumed development commencement date
Chargeable on anything additional to a development or anything new development.
what is the difference between development appraisal and residual valuation
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.
What is overage/ clawback
this is where the seller may be entitled to receive some of the profits after completion if a specific condition is satisfied.
When is VAT payable?
on professional fees
What are the current rates of finance
bank of england base rate - 4.25%
SONIA - is a choice of interest rate.
Bank of england base rate plus premium
What is the new MCIL?
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
what are the three forms of sensitivity analysis
simple analysis
scenario analysis
monte carlo simulation
what is simple sensitivity analysis
analysis of key variables such as yield, GDV, build costs, and finance rate
what is scenario sensitivity analysis
change scenarios for the development content/ timings/ costs such as modifying the design.
Which sensitivity analysis did you use and why?
simple. analysis of the yield and comps.
what are the percentages:
profit on cost?
Profit on GDV?
contingency?
prelims?
marketing costs and fees?
Professional fees?
Letting fees?
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%
Talk me through your development appraisal in Tottenham
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.
Talk me through your development appraisal in maidstone
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.
How do you calculate finance?
assume 100% dept finance
Adopt the S curve to calculate finance - build costs.
Talk abotu the S curve? How does it work and what is it?
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.
How do you calculate finance for purchase of the land and holding costs?
straight line basis.
why wouldnt a scheme be feasable?
If your costs are too high and there is no profit.
Why is a sensitivity analysis important?
it measures how a small change in the inputs can have a huge impact on the outcome.
Kind of measures the risk.
What were your inputs for tottenham?
client inputs were floor area, profit on cost of 20% and build costs.
What were your inputs for maidstone?
client inputs were targeted profit on cost of 15%,, build costs, floor area, number of units, sales prices
What are the main disadvantages with using Argus?
it assumes 100% debt finance.
accuracy lies on high level of infor and inputs
Volatile to a small change in inputs
oversimplifies finance
What is the main difference between an explicit and implicit assumption?
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
What is the main difference between a discounted cash flow and the basic residual method?
a DVC take into account timing of cashflows gives rise to more accuracy.
What is the statement on dev appraisal?
Guidence note on valuation of development property 2019
Why would you use profit on cost rather than profit on GDV?
profit on cost is more accurate.
What is your choice of interest rate when carrying out a Dev Appriasal?
check with client if an agreement is in place
in line with BOE base rate plus a premium.
Check across previous development appraisals
