Development Appraisals Flashcards
What is the purpose of a development appraisal? (3)
A development appraisal is a tool to financially assess the viability of a development scheme, establish a residual site value or assess the profitability of a proposed scheme and its sensitivity to changing inputs/ assessing the viability of different uses, rents, yields or financial contributions (eg s106/CIL payments).
What is a development appraisal?
A calculation or series of calculations to establish the value/ viability/ profitability/ suitability of a proposed development based upon the clients inputs.
It can assume site value, or calculate a site value.
What is a residual site valuation
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What is the difference between a development appraisal and a residual valuation?
Simple Methodology of a Residual Valuation
Gross Development Value (GDV) - Total Development Costs (Including profit) = Residual Land Value
What is the Gross Development Value?
The aggregate market value of the proposed development, assessed on the special assumption that the development is complete on the date of valuation in the market conditions prevailing on that date.
What inputs make up the Total Development Costs?
Site Preparation
Planning Costs
Build Costs
Professional Fees
Contingency
Marketing Costs & Fees
Finance
Developer’s Profit
Types of costs that form site preparation
Demolition, remediation works, landfill tax, site clearance etc
How would you obtain site preparation costs?
Through a contractor’s cost plan
What are some examples of planning and statutory costs?
S106
Community infrastructure levy (CIL)
Affordable housing?
Other - provision of open spaces, playgrounds etc
S278
Planning applications & Building regulation fees
Cost of planning consultants
Cost of specialist reports required by the LPA
What is a Section 106 agreement and what act introduced it?
The Town and County Planning Act 1990 & it is a legal agreement for planning obligations to gain a planning consent. E.g. affordable housing, infrastructure costs, new schools etc.
What is a CIL?
What is a Section 278….?
Sources of Build costs?
Client Information
Spons Architects and Builders Price Book
Quantity Surveyor est/bill of quantities/cost plan
Building Surveyor Estimate
RICS Building Cost Information Service (BCIS)
Limitations of BCIS
What are the typical ranges for professional Fee?
10-15% of total construction costs
What inputs make up professional fees
Architects (usually the largest proportion)
M&E consultants
Project managers
Structural engineers
What is the typical range for contingency costs
5-10%
What impacts the amount of contingency you would adopt?
Level of Risk and likely movements in building costs
What makes up Marketing costs & fees?
What are the 3 elements a developer requires finance for?
1) Site Purchase
2) Total Construction and associated costs - (S Curve)
3) Holding costs to cover voids until disposal/letting.
Method of calculating Finance
what is an acceptable range of developers profit?
15-20% depending on Risk. The riskier the development, the greater the percentage of profit the developer will seek.
What is developers profit normally calculated off of?
Normally a percentage of GDV or construction costs.
GDV more frequently used as a base for residential use.
What are the two main methods of funding?
Debt finance & Equity finance
What is debt finance?
Lending money from a bank or other financial institution
What is equity finance?
Sellings shares in a company or joint venture partnership or own money used.
What is the typical Loan to Value ratio? and what might lenders do in a riskier market?
60%. In a riskier market, lenders may adopt a Loan to cost ratio instead.
What is senior debt?
This debt is the fist level of borrowing, which takes precedence over secondary/mezzanine funding.
What is Mezzanine funding?
This is additional funding for the additional monies required over normal LTV lending.
SWAPS
JOINT VENTURES
FORWARD SALES
