Development Appraisal Flashcards
What are development properties
Interests where redevelopment is required to achieve the highest and best use, or where improvements are either being contemplated or in progress
Give examples of a development property
a) The construction of buildings,
b) Previously undeveloped land which is being provided with infrastructure,
c) The redevelopment of previously developed land,
d) The improvement or alteration of existing buildings or structures,
e) Land allocated for development in a statutory plan,
f) Land allocated for a higher value use or higher density in a statutory plan.
What are the purposes for conducting a development valuation
1) Advice on financial reporting
2) Loan security
3) Acquisition
4) Sale
What is market value
Value of the development property assuming optimum development, taking into account current and prospective economic and market circumstances and planning conditions. This may include alternative development solutions for the site
What is hope value
The possible change in value in the future due to a change of circumstance
Marriage value
A added value achieved due to the merger of two or more interests
What valuation method would you use when looking at development property
Market Comparison
Residual method
Discounted Cash Flow
What are the options a developer may have when looking at development property
1) Develop
2) Develop in phases
3) Dispose
4) Defer/ wait
How is a cash flow used in development property
Used to strengthen a residual valuation by accurately reflecting finance. This is achieved by splitting income and expenditure into periods (months) in order to reflect changes in a projects finance for example the phasing of development
How is finance calculated
Using a simplified method finance is charged on 50% of costs in order to reflect the phasing of the project (S-Curve)
A more complex model would be using cash flow on 100% of costs.
The rate of finance is a blended amount used to reflect all aspects such as arrangement fees, exit fees and is an amalgamated rate. Can be between 5-7%, finance rate will vary depending on the developer and their funding arrangement with the bank.
What is development appraisal
Financial appraisal of a specific development site used to calculate either the residual site value or the residual development profit
Residual Valuation
The value of a development site which reflects development potential. The residual is normally either development profit or land value
What is a viability report
Assessing if a site is financially viable by calculating if the value generated by a development is more than the cost of developing it
What was the governments recent review of the planning system called
Planning For the Future, White Paper
What is the current rate of annual housing the UK must provide
Roughly 330,000
What changes were considered in the recent UK government review
- Defer Community Infrastructure Levy payments and raising the contribution threshold so developers only pay for schemes of 40 or 50 homes. This is until the impact of COVID-19 is over
- Seeking to accept permission in principle for large scale schemes
What recent planning changes have been made
New permitted development rights allow for additional stories on dwellings and new dwellings in commercial or mixed use areas.
Business and Planning Act 2020, Extending the dates on which planning permission, outline planning permission and listed building consents might otherwise expire
What is the NPPF and what did it introduce?
National Planning Policy Framework
Main aim of legislation was to speed up the planning process and to ensure sustainable development
What did the Localism Act 2011 introduce
Set out a series of measures intended to transfer power from central government to local authorities and local communities. For example the introduction of the Local plan and Neighbourhood Plan
Name the three types of listed building
Grade 1
Grade 2
Grade 2*
When do you need listed building consent
Any alteration or extension which will impact the character or interest of a listed building
What finance rate do you typically adopt for a development appraisal
5-7% finance calculated on 100% cost debt
On what basis is the finance rate calculated on?
It is a blended rate encompassing the lending market and risk at the time. Exit costs and lending fee are reflected in the rate
What are the recent changes to the use classes
Class E
Shops, offices, gyms, restaurants, residential industrials
Class C
Dwelling houses, hotels and guest rooms
Sui Generis
Cinemas, pubs, takeaway food
Class B
Industrial and storage and distribution
What is the difference between a development appraisal and a residual valuation
A development appraisal is a financial appraisal of a specific development either as a residual site value or residual profit.
A residual valuation is about the potential of a site with no particular scheme in mind. What is being sought is the open market value.
How would you reflect affordable housing in your valuation
These are typically sold to a housing association or local authority therefore a lower profit rate would be expected to reflect the lower risk of achieving the sale
What is a benchmark land value?
Value of land in its existing use with an additional incentive in order to reflect the landlord parting with that plot of land
What are the 3 types of sensitivity analysis
Simple sensitivity (GDV, Yield, Build Cost)
Scenario sensitivity
Simulation sensitivity
What is the affordable housing provision in Oxford
An equivalent provision of 15% of the total sale value of the site
What is site value in the context of viability
Market value having regard to planning considerations and obligations
What is a viability reports relevance to planning applications
It is a material consideration in the determination of planning applications due to its impact on delivery of the scheme
What is the affordable housing provision in Oxford
50% which is much higher than the surrounding area
What is the white paper plan for infrastructure levies and developer obligations?
CIL and S106 are planned to be merged into one infrastructure levy
What are the 3 pillars identified in the white paper
Pillar 1– Simplified local plans and providing greater certainty as to what land can be developed for.
Pillar 2– Planning for beautiful and sustainable places – this is so interesting that re-naming it Pillow 2 would be appropriate.
Pillar 3– Taxing developers and land owners by replacing CIL and developer contributions through Section 106 agreements with a single, consolidated, flat-rate “Infrastructure Levy”
What 2 variables have the biggest impact on residual value?
Build cost and sale values
What inspection or site factors may impact on value?
- Property lies on a heritage site
- Previous contamination
- Subsoil may be poor for building on
- The availability of services
What was the recent case which set out how the existing use value of a site is to be valued
Parkhurst Road Ltd v Secretary of State for Communities and Local Government & Anor [2018] EWHC 991
What are the 14 mandatory requierments when writing a viability report
1) Objectivity and impartiality statement
2) Confirmation of instruction and absence of conflict of interest
3) No contingency fee statement
4) Transparency of information (on the basis it will be made public)
5) Confirmation where member is acting on other viability reports
6) Justification of inputs
7) Benchmark land value and supporting evidence
8) FVA origination, reviews and negotiations
9) Sensitivity analysis
10) Evidence of engagement between parties
11) Non-technical summary (easy to understand)
12) Authors sign off
13) Inputs to reports supplied by other contributors
14) Timeframes for carrying out assessments
What is the output from a development appraisal
Profit on gross development value
What new guidance has the RICS isssued on development appraisal
New Valuation in Planning guidance which replaces VIP12. Guide sets out the role viability has in the plan setting of loca authorities and in viability appeal cases
How is EUV+ calculated
This is arrived at by finding the incentive the landowner would pay to part with a site. This sum can depend on the site itself for example how unique it is, potential alternative uses and demand for such a site.
Another option for finding EUV+ is using BLV from other FVA reports
What is mezzanine finance
A hybrid of debt and equity which allows a lender a right to an equity interest if there is a default on payment.
What is an equity funded project
Producing finance through the sale of shares in an asset. For example the sale of a share in the interest of a development project
How long does granted planning permission last?
Typically 3 years from the date of approval
What is extant planning permission?
Planning permission can be described as extant if: all pre-commencement conditions have been adequately satisfied, and. the time limit of permission has not been exceeded
