Development Appraisals Flashcards
• What is the difference between a residual valuation and development appraisal?
DA: GDV - TDC - LV = Profit
RV: GDV - TDC - Profit = LV
flip RL and profit
• Talk me through the RICS financial viability in planning professional statement 2019?
14 Step Financial Viability assessment to establish profit and loss arising from development. Analyses outputs and inputs and matters of relevance. Gives judgement on profit.
What are some of the steps in the financial viability professional statement?
- Impartiality and Objectivity statement
- Confirmation of instruction - absence of COIs
- No contingent fee statement
- Transparency of info
- Confirmation on whether RICS member working on the area already
- Justification of evidence
- Benchmark land value & supporting evidence
- FVA origination, review and negotiation
- Sensitivities
- Engagement of RICS members
- non-technical summary
- authors sign off
- Inputs supplies by others
- timeframe
When would you use a Development Appraisal or Residual Valuation?
DA: Viability of a development based on assumptions - Profit generated
RV: What you should pay for the land/its worth given a profit target
• What is a sensitivity analysis?
Altering key variables such as GDV, build costs and finance to see the impact on the on the key outputs
What is a scenario analysis?
Running multiple different situations for the development to see the impact on key outputs - timings, phasing, content
• What factors can impact a development appraisal?
Finance costs
Build Costs
Planning Costs
Contingencies
• How does finance cost impact a development?
Payments on land and construction costs
Reflect costs of borrowing and therefore risk
Can be shown explicitly in cashflow on drawdown or 50% of costs 100% of the time in an s curve
Higher the risk, higher the cost
• What ways can you feed finance into the appraisal?
Explicitly
S-Curve
Straight-line
What metrics, other than financial ones are there for Development Appraisals?
Site coverage - 40% for Industrial
• How do you calculate the GDV of offices compared to residential?
Office: Capitalize rent at appropriate yield
Residential: Price per square foot or price per unit basis
What is CIL?
Community Infrastructure Levy
Charged by local authorities on a square metre basis - aligned to their charging schedules found online.
Charged on the increase in space from a redevelopment of buildings bigger than 100m2
Purpose is to allow the local authority to provide the required infrastructure to support development
What is S106?
Section 106 are flexible tariffs/requirements put on developments by the local authority - no compliance can mean no planning permission.
Three criteria:
1. In place to ensure the viability of the development
2. Directly related to development
3. fair and resonable
e.g. Affordable housing or recreational facilities
usual development programme?
Pre Construction - site assembly, planning
Construction - Site prep, infrastructure, main build
Post Construction - snagging, lettings and sales
What are the inputs to a development appraisal?
GDV Build Costs Land Value Professional Fees (8-15%) Finance Costs Contingencies (5%) Letting and Sales
What are permitted development rights?
GDPO 2015
Rights to build/develop without planning permission when usually required
Due to size/scale that will not have an unacceptable impact
GDPO sets out classes for which PP automatically given
LA’s can remove with article 4 - requiring PP when not normally needed
What are the benefits of a cashflow development appraisal?
Explicit - good for phased development
Allows for accurate finance cost assumptions based on drawdown
Shows the viability of each phase - any subsidization
Shows max deficit and peak funding required
Impact of infrastructure
What does a site appraisal usually include?
Extent of site Shape Infrastructure Waste History - risk of flooding Restrictive covenants (ROW) Efficiency Encumbrances Ownership Contamination Archaeological
What are contingencies?
Downside risk protection from unknown causes associated with a project – amount that is held in reserve in case.
• Weaknesses of an RLV?
Lots of assumptions and very sensitive to changes in the profit requirement
What is a collateral warranty?
Contract giving 3rd party rights to ensure the quality of specification and no defects
What was the CIL calculation for the Kew site? and S106 considerations?
£250 per sq m in the high band on the charging schedule for high end residential on any additional floorspace
Roughly 3,000 increase in GIA psf - £750,000
AH charge in the local community
What were the build costs for Kew?
£360/ft2
What was the breakeven price at Kew? What was the assumed price?
£950 /ft2 break even
£1250 /ft2 was the assumed sales price - around 25% headroom
