Development Appraisal Flashcards
What is the difference between development appraisal and residual valuations?
Development appraisals - assessment of scheme viability based on developers inputs
Residual valuation - Form of valuation used to find the sites land value, using market inputs
What is the purpose of a development appraisal?
Tool to assess the viability of a development scheme.
Can be used to establish a residual site value or to assess the profitability of a proposed send scheme
What is included in total development costs?
- Site Preparation
- Planning Costs
- Building Costs
- Professional fees
- Contingency
- Marketing Costs
- developers profit
- Finance
Where can you find build costs?
- Client information
- BCIS
- Building surveyor estimate
What level should you input professional fees?
10-15% plus VAT of total construction costs
What is included in professional fees?
Architects
M&E consultant
Project manager
Structural engineer
What level should you input contingency?
5-10% of construction costs depending on level of risk
What level should you input marketing costs?
Usually 1-2% of GDV
What level do you input developers profit?
17.5% profit on cost (with planning)
25.0% profit on cost (without planning)
How do you determine the finance rate?
Either:
Current SONIA rate
Bank of England base rate + premium
Rate which a developer can borrow (provided by them)
What are the 3 elements a developer needs to borrow for?
- Site purchase
- Total construction costs
- Holding costs to cover voids until disposal of scheme e.g empty rates, service charge
On what basis is the finance for site purchase calculated?
Compound interest - straight line basis
On what basis is the finance for total construction basis calculated?
S curve
On what basis is the finance for holding costs calculated?
Compound interest - straight line basis
Does development appraisal assume 100% debt?
Yes
What assumptions can you change if a site has planning?
Reduce profit on cost
Reduce timescales
Reduce cost due not needing planning costs
Wha are some types of development finance?
- Debt finance - lending from bank
- Equity finance - own money
- Senior debt - first level of borrowing
- Mezzanine funding - additional funding above the normal LTV
- JV
- Forward sale
What is the typical LTV ratio?
Typically around 60%
What is overage?
Contract between the landowner and developer to share the increase in value of land having already sold the land
What are the 2 types of overage?
- Planning overage - increase in site value following grant of planning
- Sales overage - increase in number of units permitted on site
What is the profit erosion period?
Length of time for a development profit to be eroded by holding charges following completion of the scheme due to interest charges
What are the 3 types of sensitivity analysis?
- Simple - based on the sensitivity of key variables
- Scenario - change of scenario e.g phasing
- Monte Carlo simulation - using probability theory
What is the key RICS publication for this?
RICS Professional Standard: Valuation of Development Property (2019)
What is a payment in lieu?
Agreement with the council to provide fee towards affordable housing instead of providing on-site
Above how many units is affordable housing typically needed?
10
What is golden brick?
30% of affordable housing income payable upfront
What is CIL?
Community infrastructure Levy
What is the difference between CIL and S106?
CIL is payable on the net increase in floor area of a development and is based on the local authority’s CIL charging schedule - used to pay for borough wide infrastructure projects
S106 - agreement with local council based on infrastructure costs for the specific development - may not always be payable
What is the difference between viability and profitability?
Viability is subject to each development and the scheme they plan to bring forward, and profitability is a financial measure
Are there any disadvantages associated with Argus developer?
Assumes 100% debt finance
