Development Appraisal submission Flashcards
What are site abnormals? and what are the typical ones?
These are unusual costs which come up in situation such as, poor load-bearing ground conditions, contamination, risk of flooding and sites laid on slopes or TPOs
How finance is normally calculated based on UK bank base rate?
Current base rate + entry fees + exit fees + any additional risk fees ( what the bank want to get in return for lending)
What are different ways of calculating the finance rate?
3 main ways:
- Bank of England Base Rate plus premium
- By comparable with similar size and risks projects
- It could be provided in client’s loan terms
- SONIA plus premium (overnight interest rate that are paid by banks to borrow funds from other banks)
What are the main reasons a developer needs finance for?
Site purchase
Construction costs & associated costs
Holding costs to cover void until site disposal
What is an S-curve? please describe it
- It’s a graph showing the patterns of cashflow of a typical development project
Typical scenario of curve:
- The usual curve will normally start at a low level and increase gradually as the project progresses.
- The curve will reach its peak during the middle of construction, when the majority of costs occur and then tail off towards the end of the development period, to reflect the completion of the project and the realisation of revenue
When could a developer borrow at a lower rate?
If the developer is established company and the risk profile of the development is low.
What is the loan to value ratio?
- Ratio expressing value of the loan in proportion to the value of the property
- Typically LTVs are 60% of value
What is the S-curve used for?
The S-curve is useful for assessing cashflow requirements over the development time period and tailor eventual loan to it
What are factors can influence interest rates?
- Risk profile of the development project
- Risk profile of the developer, whether they are an established company or not
What is affordable housing?
It includes social and affordable housing provided to eligible households whose needs are not met by the market and therefore it’s provided at an affordable price.
What are the main type of affordable housing?
- Affordable rent
- Intermediate housing (shared ownership)
- Social rent
What ways can GDV of affordable housing be valued?
- By comparable evidence extracted from similar developments in same area
- By capitalising the net annual rents and summing those up with the capital receipts from initial equity
- Adopting the subsidy provided by Registered Providers
Do you adopt a different build costs for affordable units? and why?
Yes these will generally be lower unless specified.
I would normally expect affordable housing to include lower cost finishes and simplified building designs and specifications.
What is CIL?
Community Infrastructure Levy, and It’s a fixed planning payment obligation for new development to help fund new infrastructure in the local area;
When is CIL payable? How is the rate based on (sqf or sqm)? Is it payable on affordable housing?
CIL is charged on any net increase of gross internal of development on the site;
The charge is normally provided in sqm
Affordable areas may be exempt from CIL but an applicant needs to query directly the LPA
Are permitted developments conversion liable for CIL?
It depends as some of them do (although the floorspace has not increased) so it’s recommended to contact the relevant LPA;
Give me brief summary of your appraisal in Nine Elms?
- S: to verify whether the asking price proposed by the client would be able to attract a sufficient level interest and provide appetite for multiple buyers, in the current market conditions
- T: Carry out an appraisal based on various assumptions, and fixing the asking price to see what level of profit would the site generate
- A: Collate key inputs to include in the appraisal; cross checking the Build costs provided by the client with the BS surveying team to ensure this was appropriate
- R: I determined a Profit on Cost of 10% which I believed would be seen too low for attracting a good level of demand
In nine elms, what were the key inputs of dev appraisal? and how did you determine them?
- 17 resi units of 1,2,3 beds (proposed by client)
- GDV= £12m [MV ave: £450k- 970k per unit (ave £1,000 psf)]
- Build costs: £250 psf provided by client and cross checked with BS
- (Contingency 7.5%)
- Professional fees (10%)
- AH contribution: £800k (no AH provide on site)
- CIL: £700k (£400 psm Wandsworth + £80 psm MCIL 2)
- Marketing: 1% of GDV
- Agent and legal fees: 1.8%
- Interest rate: 7% (Profit erosion 2 yrs 10 mths)
- Constr. Period: 3 + 15 + 6 (24 months)
What was the aim of the Nine Elms appraisal?
to verify whether the asking price would generate sufficient demand
What was your conclusion and why in the Nine Elms appraisal?
The asking price was too high for attracting demand from developers, as I believed that the expected profit level for that scheme in current market condition should have been of between 18% of Costs
In the Nine Elms appraisal, what was your conclusion and why ?
The asking price was too high for attracting demand from developers (Profit generated 10% on Cost), as I believed that the expected profit level for that scheme in current market condition should have been of 15-18% of Costs
What sort of target profit margins would you expect in average risk developments?
- 18-20% of Cost
- 16-18% of GDV
The target profit will depend on the risk profile of the development, the size and its complexity
