Development Appraisal Flashcards
What is BCIS?
Building Cost Information Service Provides cost and price data for the UK Construction industry. Founded as part of the RICS, it is now a standalone company.
What is the difference between a Development Appraisal and a Residual site valuation?
Development appraisal- calculation to establish the value/ viability/ profitability, suitability of provided development based upon client inputs. Assume site value. Provide guidance as to viability of proposed development.
Residual Site Valuation- most common purpose is for a specific valuation of property holding to find the market value of the site based on market inputs. One moment in time (valuation date). can be based on simple residual valuation or the DCF method. all inputs always taken at date of valuation.
Residual valuations:
GDV - COSTS - PROFIT = LAND
Development appraisal:
GDV - COSTS - LAND = PROFIT
What is outlined in the RICS PS: Valuation of Development Property 2019
Provides a detailed overview of the valuation of development property and defines development property as interests where redevelopment is required to achieve the highest and best use, or where improvements are wither being contemplated or are in progress at the val date
What is the methodology for a residual valuation for a commercial property?
Gross development valuation (capital value of completed scheme) (GDV)
Market valye of completed proposed development at today’s date/ date of val
Use plans if needed to measure on CAD
Value at current date assuming oresent values and market conditions
Comparable method of val used to establish rents and yeilds
All Risks Yield used
An allowance of rent free period or tenant’s incentives and marketing void can be assumed
purchaser’s costs are usually deducted for commerical property cals
On the residential block, Camden, why did you use a profit on cost of 20% on private and 6% on affordable?
% of GDV around 15%-20% depending on risk. GDV more frequently used as a base of resi. If scheme low risk (prelet/sold) a lower return may be required. % profit required has recently risen given current risker market conditions. Deduct TDC from GDV to estbish site value having allwed for normal purchaser’s costs.
How did you account for risk in the development land, Tongham (Relating to no planning)?
I equated a % risk (contingency)
Why did you not include affordable housing in the development land Tongham?
I did not include affordable housing as the site only had capacity for 6 dwellings. I refered to the local plan and confirmed that the the number of units that the site could provide was under the number of houses needed to provide affordable housing.
What is a sensitivity analysis and what is the purpose?
A series of calculations which can determine the risks of a scheme by evaluating how changes to individual inputs would impact it. I used it to review the effects of both positive and negative movements in build costs and GDV of the scheme to test the effect on the land value and profitability. Clearly sets out so client can understand the risks and what may happen/effect of fluctuations.
How did you decide on how much affordable housing to provide and the tenure mix when appraising the development site in Guildford
I referred to the local plan which informed me how much affordable housing the local council requires, the desired affordable tenure mix e.g. how much affordable rent and intermidiate housing. As well as the site density
When appraising the office in Guildford. What inefficiencies did you find?
Approx. 40% of the office building was sitting vacant for over 3 years. This was because in Guildford there is no demand for non Grade A offices.
How did you undertake the indicative massing study when appraising the office in Guildford.?
Due to the site’s location and surrounding uses, as well as the current site density I decided to use 100% site density as this was the current site density.
How did you perform an affordable housing appraisal on your valuation of an office in Guildford?
I refered to Guildford’s local plan which stated that developments over 11 units must provide min 40% affordable housing (70% affordable rent and 30% first homes). I ran a discounted cash flow using Proval. Proval appraisal values the income stream of each rented unit, including allowances for management costs, maintenance costs, construction costs, service costs and void periods.
Is a contingency rate of 7.5% standard?
Yes. Anything between 5% and10% is normal.
What are the key inputs that are included in an appraisal?
GDV, construction costs, finance costs, contingency rate, professional fees, planning costs (CIL/S106), developer’s profit
What is CIL and how is it calculated? What is MCIL?
CIL is a fee that has to be paid to the LPA to account for pressure on infrastructure (schools, roads etc) that the additional housing has caused. It is calculated by multiplying the net uplift in floor space (sqm) by the CIL rate outlined in the charging schedule.
MCIL is applicable in London and is collected to help finance cross rail. Boroughs that benefit more from Crossrail have a higher rate to pay.
