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APC I&F > Development Appraisals > Flashcards

Development Appraisals Flashcards

1
Q

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

A

DA: GDV - TDC - LV = Profit
RV: GDV - TDC - Profit = LV
flip RL and profit

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2
Q

• Talk me through the RICS financial viability in planning professional statement 2019?

A

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.

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3
Q

What are some of the steps in the financial viability professional statement?

A
  1. Impartiality and Objectivity statement
  2. Confirmation of instruction - absence of COIs
  3. No contingent fee statement
  4. Transparency of info
  5. Confirmation on whether RICS member working on the area already
  6. Justification of evidence
  7. Benchmark land value & supporting evidence
  8. FVA origination, review and negotiation
  9. Sensitivities
  10. Engagement of RICS members
  11. non-technical summary
  12. authors sign off
  13. Inputs supplies by others
  14. timeframe
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4
Q

When would you use a Development Appraisal or Residual Valuation?

A

DA: Viability of a development based on assumptions - Profit generated
RV: What you should pay for the land/its worth given a profit target

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5
Q

• What is a sensitivity analysis?

A

Altering key variables such as GDV, build costs and finance to see the impact on the on the key outputs

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6
Q

What is a scenario analysis?

A

Running multiple different situations for the development to see the impact on key outputs - timings, phasing, content

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7
Q

• What factors can impact a development appraisal?

A

Finance costs
Build Costs
Planning Costs
Contingencies

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8
Q

• How does finance cost impact a development?

A

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

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9
Q

• What ways can you feed finance into the appraisal?

A

Explicitly
S-Curve
Straight-line

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10
Q

What metrics, other than financial ones are there for Development Appraisals?

A

Site coverage - 40% for Industrial

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11
Q

• How do you calculate the GDV of offices compared to residential?

A

Office: Capitalize rent at appropriate yield
Residential: Price per square foot or price per unit basis

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12
Q

What is CIL?

A

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

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13
Q

What is S106?

A

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

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14
Q

usual development programme?

A

Pre Construction - site assembly, planning
Construction - Site prep, infrastructure, main build
Post Construction - snagging, lettings and sales

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15
Q

What are the inputs to a development appraisal?

A 
GDV
Build Costs
Land Value
Professional Fees (8-15%)
Finance Costs
Contingencies (5%)
Letting and Sales
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16
Q

What are permitted development rights?

A

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

17
Q

What are the benefits of a cashflow development appraisal?

A

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

18
Q

What does a site appraisal usually include?

A 
Extent of site
Shape
Infrastructure
Waste
History - risk of flooding
Restrictive covenants (ROW)
Efficiency 
Encumbrances
Ownership
Contamination
Archaeological
19
Q

What are contingencies?

A

Downside risk protection from unknown causes associated with a project – amount that is held in reserve in case.

20
Q

• Weaknesses of an RLV?

A

Lots of assumptions and very sensitive to changes in the profit requirement

21
Q

What is a collateral warranty?

A

Contract giving 3rd party rights to ensure the quality of specification and no defects

22
Q

What was the CIL calculation for the Kew site? and S106 considerations?

A

£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

23
Q

What were the build costs for Kew?

A

£360/ft2

24
Q

What was the breakeven price at Kew? What was the assumed price?

A

£950 /ft2 break even

£1250 /ft2 was the assumed sales price - around 25% headroom

25
Q

What was the viability of Kew based on?

A

Profit on Cost of >20%

At the assumptions provided it achieved 24%

26
Q

• What was the original planning for Canada Water and what was the intended use?

A

Planning permission had been granted for residential purposes - the client wanted us to assume that they had gained permission for an office led scheme with ancillary retail

27
Q

What were the different appraisal for the canada water scheme?

A

5 Appraisal:
Land sale after planning obtained
Master Plan of obtaining planning and building 3 phases
Then sale after each phase

28
Q

What were the impacts on key metrics of modelling the different scenarios?

A 
IRR highest in the sale of land strategy as exit value was after a shorter period
Profit on Cost (26% to 36%)
Equity Multiple (1.36 to 1.7)
29
Q

What were the contingency assumptions for Canada water? Where they included in the land sale? What was the finance rate?

A

5% and not included in the land sale

50% LTC and 5% all in

30
Q

What were the exit assumptions on Canada Water?

A 
ERV: £58/ft2
Yield: 4.25%
Rent Free: 24 months
NIA: 1.2m 
GDV: 1.4bn (1.5% vendors) (£222m in land)
Total Cost: £992m (£810/ft2)
31
Q

In the Residential led scheme what was the impact on profit of increasing construction costs and finance costs?

A

Reduction in profit in the development appraisal

This could have been achieved by dropping the purchase price

32
Q

Talk us through a development appraisal from start to finish?

A

choose and recite

33
Q

What is profit erosion?

A

The period between practical completion and (if later) the date when the development is fully let. The latter will normally trigger payment of the developer’s profit. Until this is triggered, rolled up interest will continue to accumulate, thus eroding the amount of the developer’s profit.

34
Q

What is overage?

A

an overage is an agreement that the buyer will pay extra, on top of the original purchase price, if and when certain events happen. For example, if the buyer increases the value of the land by obtaining planning permission.

Why are overages popular? If you’re a seller, it means you can still benefit from an increase in the value of your land, after you’ve sold it. So if you sold a couple of fields and your buyer subsequently gains planning permission to build 80 houses on them, you can claw back some of the increase in the land’s value.

If you’re a buyer, an overage agreement can help you buy land or property for a lower initial price, with the proviso that you’re committed to paying more if it gains in value.

35
Q

What other planning cost comes under the town and country planning act?

A

S278 highway works

36
Q

Why an S-Curve?

A

realistic construction profile

37
Q

What does BCIS stand for?

A

Building Cost Information Service

38
Q

What is the BCIS based on?

A

Cost and price information is collected by BCIS from across the UK construction industry, then collated, analysed, modelled, interpreted

From tender

APC I&F (20 decks)

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