Development Appraisal Flashcards
What is a development appraisal?
A financial appraisal of a development. Typically output is development profit although other output metrics can be used.
What can a development appraisal be used for?
Analysis of a scheme to consider whether the level of required planning obligations is viable
Assessing whether a development is viable or not based on the level of profit achieved
Assessing the best and highest use for a property or to compare different schemes or proposals
Assessing affordable housing requirements.
What is the difference between a development appraisal and a residual valuation?
A residual valuation has one main purpose which is to determine the market value of the land. Inputs are usually fixed and doesn’t have to involve a precise cashflow finance costs can be crudely calculated.
A development appraisal has several purposes albeit most often to establish profitability of development options. Inputs often variables. Always incorporates a precise cashflow and calculated finance costs. Requires software. More detailed complex application.
Is there any RICS guidance available?
Valuation of development property 1st edition 2019
Valuation of land for affordable housing 2nd edition 2016
What measurement basis do you calculate build costs?
GIA basis
Where would you get your build costs from?
BCIS, The client, 3rd party building surveyor, recent projects
How do you work out your contingency rate?
Typically between 5 and 10%, dependent on risk, how much site investigation done, level of abnormal
What is contingency?
If any unpredicted issues arise such as additional construction costs.
How do you reflect for letting void?
Reflected in cash flow at end of the construction process. Alternatively reflect in yield
How is the typical development appraisal structured?
GDV – input costs – fixed land cost = profit
What is the equation for residual land value?
GDV – Total costs – developers profit = residual land value
Impacts on RLV?
Increasing the GDV increases RLV
Increasing the TDC lowers the RLV
Increasing the DP lowers the RLV
What are some other output metrics other than profit?
Internal rate of return, return on capital employed, rent cover
What is intental rate of return?
A measure of an investments profitability over its lifetime. I higher IRR indicates a more profitable investment.
How do you calculate GDV?
Value of completed property. Market value x number of units
What costs are deducted from GDV?
Build costs
Professional fees
Planning fees
Marketing, letting, disposal
Contingency
Finance costs
Fixed land cost
Where would you take account of planning costs?
Within total costs
How did you calculate professional fees?
Tend to range between 10-15% plus VAT of construction costs.
What professional fees are normally included?
Architect, structural engineer, project manager
Where does the information provided by BCIS come from?
RICS service. Updates are obtained monthly from recent contract prices/tenders agreed
How do you calculate profit of a development?
GDV – Total development costs – residual value = profit
What is overage?
A pre agreed arrangement between vendor and developer for sharing profits received over and above the expected profit.
What is a typical loan to value ratio?
In the region of 60%, used to be 70% but now more risk adverse.
Main forms of development finance used by developers?
Debt funding, equity funding