Development Appraisal Flashcards
What is a development appraisal
Process undertaken to understand the viability of a project
What is a sensitivity analysis
Where you re-calculate the appraisal with different assumptions on inputs
e.g changing build costs and site costs upwards and downwards in 5% increments
What is the difference between Residual Method and Development Appraisal
-Residual = site value
-Development appraisal is used to assess the viability of a project and uses a number of different scenarios. It cn establish the land value and the likely profit. It can be in the form of a traditional residual valuation
How much would it cost to build a retail warehouse
£3m
1,170 psm
Why do you use a development appraisal
Assessing whether a development appraisal is viable or not based on the level of profit received
GDV-inputs-fixed land costs = profit/viability
How is the GDV calculated
GDV = is the completed value of a scheme
The comparable method is used
What is BCIS
Building Cost Information Service
What are the limitations to BCIS
Only deals with base build costs and no externals
What is the S-Curve Profitle
DEFINTION- reflects the pattern of construction costs
Predicts cash flow developments and the changes it will bring
Standard curve which represents the lower level of expenditure (due to low cost enabling works) at the beggining of the project which then increases as project progresses
What is contingency
A future event or circumstance that cannot be predicted without certainty
Construction costs
Did you apply a contingency in your development appraisals
Yes- 5% on construction costs
What are the main financing methods used for developers
Debt funding - borrowing from bank
Equity funding - using own funding
DCF
Why would you use sensitivity analysis
To model different scenarios and provide reasoned advise to a client
Talk me through the development appraisal you undertook at Kensington
I ran 2 development appraials.
1 of a knockdown rebuild
2 of a modernisation
Modernisation significantly better option. A knock down rebuild was predicted to see no increase in turnover and would have a longer pay back period
