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Development Appraisal > Development Appraisal > Flashcards

Development Appraisal Flashcards

1
Q

What are development properties

A

Interests where redevelopment is required to achieve the highest and best use, or where improvements are either being contemplated or in progress

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2
Q

Give examples of a development property

A

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.

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3
Q

What are the purposes for conducting a development valuation

A

1) Advice on financial reporting
2) Loan security
3) Acquisition
4) Sale

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4
Q

What is market value

A

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

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5
Q

What is hope value

A

The possible change in value in the future due to a change of circumstance

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6
Q

Marriage value

A

A added value achieved due to the merger of two or more interests

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7
Q

What valuation method would you use when looking at development property

A

Market Comparison
Residual method
Discounted Cash Flow

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8
Q

What are the options a developer may have when looking at development property

A

1) Develop
2) Develop in phases
3) Dispose
4) Defer/ wait

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9
Q

How is a cash flow used in development property

A

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

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10
Q

How is finance calculated

A

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.

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11
Q

What is development appraisal

A

Financial appraisal of a specific development site used to calculate either the residual site value or the residual development profit

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12
Q

Residual Valuation

A

The value of a development site which reflects development potential. The residual is normally either development profit or land value

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13
Q

What is a viability report

A

Assessing if a site is financially viable by calculating if the value generated by a development is more than the cost of developing it

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14
Q

What was the governments recent review of the planning system called

A

Planning For the Future, White Paper

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15
Q

What is the current rate of annual housing the UK must provide

A

Roughly 330,000

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16
Q

What changes were considered in the recent UK government review

A
  • 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
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17
Q

What recent planning changes have been made

A

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

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18
Q

What is the NPPF and what did it introduce?

A

National Planning Policy Framework

Main aim of legislation was to speed up the planning process and to ensure sustainable development

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19
Q

What did the Localism Act 2011 introduce

A

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

20
Q

Name the three types of listed building

A

Grade 1
Grade 2
Grade 2*

21
Q

When do you need listed building consent

A

Any alteration or extension which will impact the character or interest of a listed building

22
Q

What finance rate do you typically adopt for a development appraisal

A

5-7% finance calculated on 100% cost debt

23
Q

On what basis is the finance rate calculated on?

A

It is a blended rate encompassing the lending market and risk at the time. Exit costs and lending fee are reflected in the rate

24
Q

What are the recent changes to the use classes

A

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

25
Q

What is the difference between a development appraisal and a residual valuation

A

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.

26
Q

How would you reflect affordable housing in your valuation

A

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

27
Q

What is a benchmark land value?

A

Value of land in its existing use with an additional incentive in order to reflect the landlord parting with that plot of land

28
Q

What are the 3 types of sensitivity analysis

A

Simple sensitivity (GDV, Yield, Build Cost)

Scenario sensitivity

Simulation sensitivity

29
Q

What is the affordable housing provision in Oxford

A

An equivalent provision of 15% of the total sale value of the site

30
Q

What is site value in the context of viability

A

Market value having regard to planning considerations and obligations

31
Q

What is a viability reports relevance to planning applications

A

It is a material consideration in the determination of planning applications due to its impact on delivery of the scheme

32
Q

What is the affordable housing provision in Oxford

A

50% which is much higher than the surrounding area

33
Q

What is the white paper plan for infrastructure levies and developer obligations?

A

CIL and S106 are planned to be merged into one infrastructure levy

34
Q

What are the 3 pillars identified in the white paper

A

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”

35
Q

What 2 variables have the biggest impact on residual value?

A

Build cost and sale values

36
Q

What inspection or site factors may impact on value?

A
  • Property lies on a heritage site
  • Previous contamination
  • Subsoil may be poor for building on
  • The availability of services
37
Q

What was the recent case which set out how the existing use value of a site is to be valued

A

Parkhurst Road Ltd v Secretary of State for Communities and Local Government & Anor [2018] EWHC 991

38
Q

What are the 14 mandatory requierments when writing a viability report

A

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

39
Q

What is the output from a development appraisal

A

Profit on gross development value

40
Q

What new guidance has the RICS isssued on development appraisal

A

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

41
Q

How is EUV+ calculated

A

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

42
Q

What is mezzanine finance

A

A hybrid of debt and equity which allows a lender a right to an equity interest if there is a default on payment.

43
Q

What is an equity funded project

A

Producing finance through the sale of shares in an asset. For example the sale of a share in the interest of a development project

44
Q

How long does granted planning permission last?

A

Typically 3 years from the date of approval

45
Q

What is extant planning permission?

A

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

Development Appraisal (2 decks)

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