Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

RICS RESIT > Development Appraisals > Flashcards

Development Appraisals Flashcards

1
Q

What are Clarion’s KPIS?

A

IRR (15%) and Profit before finance (Net Profit) this adjusted based on the type of deal

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

When at Enderby Wharf what was the affordable housing mix?

A

35% affordable by hab room

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What was the abnormal you dealt with at Enderby Wharf?

A

Basement

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What was the CIL rate at Enderby Wharf?

A

25 for Mayoral and 90 for the borough for residential. For further information I would review the LPA website and GLA website

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What is a provisional sum?

A

A provisional sum is an amount assumed for a cost when there is a lack of detail meaning that this can not be calculated.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

How did you calculate CIL?

A

I multiplied the rate by the area and accounted for indexation. The area to be included for was the gross internal area of the development less the retained elements and the in use areas to be demolished. Following this I then calculated an assumed amount for CIL relief for the affordable housing element of the scheme.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

At St Nicholas House what was the before and after build cost assumption?

A

235-255psf

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What was your assumed allowance for fees?

A

7.5%

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What impacts IRR?

A

When payments or receipts are made in the cash flow. The overall profit made.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What is IRR?

A

Internal Rate of Return

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

How do you calculate IRR?

A

Using IRR on excel or setting the NPV of a value of a project to Zero by adjusting the discount rate. To do this you will have to work out the cashflow for each year and adjust the discount rate accordingly until the overall NPV of the project is 0.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is the difference between valuation and development appraisals?

A

Valuation is at a specific point whilst following a specific method, utilising a specifc base of value for a specific output. A development appraisal is on going and has multiple outputs such as profitability, IRR and ROCE.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

How would you get more comfortable with these risks?

A

Explore them further / come up with mitigation strategies or allow for provisional sums in the risk register and ensure out contigency allowance is enough

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What sensitivities did you run at Tesco New Malden?

A

35% and 50% affordable mixes and a number of different payment structures

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

How did these sensitivities impact the IRR?

A

The more strung out the land payments were the higher the IRR was.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What was the affordable housing mix requirement at West Byfleet?

A

The affordable housing mix was 50% due to the site being greenfield

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What was the impact of using a golden brick structure?

A

GB allows for a more efficient tax structure in which no VAT is paid and less interest is required due to a later land payment therefor increasing the overall affordable offer.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Why did you look at increasing the affordable?

A

To reduce sales risk and utilise grant

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

How do you calculate IRR?

A

The IRR is calculated by finding the discount rate at which the NPV will equal 0. When done manually this is done by discounting the future cashflows to their present value and totalling including the initial investment to give an NPV of 0

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What appraisal tool do your currently use?

A

Bespoke excel based appraisal

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

How would you weight different types of comparable evidence?

A

Category A- Directly related comparable- from reliable sources
Category B- General market Data- provides guides
Category C- Other data

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What is a development appraisal?

A

A development appraisal is a process undertaken to understand the viability of a project.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

How do you calculate CIL?

A

(CIL) is calculated per square metre. The calculation involves multiplying the CIL charging rate by the net chargeable floor area (based on Gross Internal Area)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

What yield would you use to calculate a commercial property?

A

All risk yield

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

What is the difference between sensitivity analysis and scenario analysis?

A

Sensitivity changes the key variables- yield, GDV, build cost and finance rate.

Scenario analysis changes the tenure, timing, costs and phasing.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

How is interest rate broken down?

A

Sterling Overnight Index Average +5%

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

What is BCIS?

A

Build Cost Information Service

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

What is a s-curve cost profile and why would you use it?

A

S curve is a mathematically calculated payment profile which shows the cumulative progression of costs during a construction project.

29
Q

What is NPV?

A

Net present value (NPV) is a method used to determine the current value of future cash flows

30
Q

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

A

Residual is a method of valuation which uses market inputs at a particular moment in time, on a valuation date to get a site value.

Development appraisal is to process used to assess the viability of a project using the clients input

31
Q

What would you do differently for a development appraisal that had planning permission vs one which didn’t?

A

a. Cost- get greater clarity on costs on a scheme with planning and not use assumptions.

b. Time- set a clearer programme of works

c. Risk- Can lower the profit margin due to the reduced risk of securing planning

32
Q

If you were to conduct a sensitivity analysis on a development appraisal what factors would you choose to change?

A

GDV
Build cost
Interest rate
Yields
Rental value

33
Q

What stage would you decide to use a development appraisal and residual valuation ?

A

Residual valuation at the point of purchase or disposal

Development appraisal- carried out throughout the development cycle

34
Q

What’s included in professional fees?

A

Architect
Civil Engineer
Mechanical engineer
Structural engineer
Project manager

35
Q

What’s included in your construction costs?

A

Demolition and site clearance
Site facilities
Build works and finishing

36
Q

What is CIL?

A

The Community Infrastructure Levy (CIL) is a charge that local authorities can set on new development in order to raise funds to help fund the infrastructure, facilities and services - such as schools or transport improvements - needed to support new homes and businesses.

37
Q

What is s278?

A

is a section of the Highways Act 1980 that allows developers to enter into a legal agreement with the council to make alterations or improvements to a public highway, as part of planning approval.

38
Q

What is s106?

A

are a mechanism which make a development proposal acceptable in planning terms, that would not otherwise be acceptable.
They must be:
necessary to make the development acceptable in planning terms;

directly related to the development; and

fairly and reasonably related in scale and kind to the development.

39
Q

What legislation do s106 and s278 come under?

A

S.106 is from the Town and Country Planning Act 1990

S278 is from the Highways Act 1980

40
Q

What is the current bank of England base rate?

A

2.25%

41
Q

How do you calculate ROCE?

A

Net profit/ Operating capital

42
Q

What is a yield?

A

Yield is calculated by expressing the rental income of a property over the course of a year as a percentage of how much the property cost

43
Q

What are the two methods of funding?

A

Debt finance- lending money from the bank or other funding institution

Equity finance- selling shares in a company or joint venture partnership or own money used

44
Q

Tell me about your understanding RICS Financial Viability in Planning?

A

RICS professional standards and guidance, England. Financial viability in planning: conduct and reporting 1st edition, May 2019

Changes:
- no contingency-based fees
- market inputs, not client specific
- will be made public
- requires a sensitivity analysis

45
Q

What is financial viability?

A

Also known as an FAV, this is the process of assessing whether a site is financially viable, by looking at whether the value generated by a development is more than the cost of developing it. Typically, this is calculated using a Residual Land Value approach.

Viability helps to strike a balance between the aspirations of developers and landowners, in terms of returns against risk, and the aims of the planning system to secure maximum benefits in the public interest through the granting of planning permission.

Benchmark Land Value (BLV) is used as the basis of value in a FAV, which is defined in the latest PPG. It is based on Existing Use Value (EUV), plus a premium for the landowner. This is also known as EUV+ or the EUV plus approach.

Existing Use Value (EUV) is not the definition set out in the UK National Supplement to the Red Book in VPGA 6.1, which relates instead to financial reporting. It is a different definition required under Government policy, which does not need to be formally declared as a departure to the Red Book providing that the valuation purpose, financial viability in planning, is made clear in the surveyor’s report.

Furthermore, EUV is effectively the value of land in it’s existing use. This is not the same as the price paid and it must disregard any hope value.

46
Q

What is a cash flow?

A

The net amount of cash and cash equivalents being transferred in and out of a project.

47
Q

How to calculate Internal rate of return

A

It is an iterative calculation on a cashflow

IRR is calculated by the condition that the discount rate is set such that the NPV = 0 for a project.

48
Q

How much were planning fees at St Nicholas House?

A

7.5%

49
Q

What sensitivities did you run at West Byfleet?

A

50/60% affordable housing

50
Q

Why did you look at a golden brick structure at West Byfleet?

A

Due to the payment structure, we proposed with the vendor, I could push back the land payments to a
golden brick structure, which reduced the interest costs and increased the overall land bid.

51
Q

Why did you look at additional affordable housing at West Byfleet?

A

As this reduced sales risk and increased the overall offer due to increased grant funding on any additional units outside the S106.

52
Q

What can a development appraisal be used for?

A

○ Analysis of a scheme to consider whether thelevel of required planning obligations is viable
○ Assessingwhether a development is viableor not based on the level of profit achieved
○ Assessing the best and highest use for a property or to compare different schemes or proposals
○ Assessing affordable housing requirements

53
Q

How is a development appraisal typically structured?

A

GDV -input costs -fixed land cost = profit metric

54
Q

What costs are deducted from GDV?

A
  • Build costs –these can be based on client figures, cost databases (e.g. BCIS or Spons) or input from a building or quantity surveyor. They will differ based on the use, specification, construction and location
  • Professional fees –these are typically 10-15% of the build cost, relating to fees for professionals such as an architect, quantity surveyor, structural engineer and CDM coordinator
  • Planning fees –including Section 106 and Community Infrastructure Levy (CIL) contributions
  • Marketing, letting and disposal costs
  • Contingency –typically 5% of build cost depending on the level of risk and market conditions
  • Finance costs –based on client figures or market rates. Candidates need to be aware of the use of an S curve to reflect the pattern of construction costs
  • Other site specific costs, such as demolition, site preparation or specialist surveys
  • Fixed land cost
55
Q

What is the purpose of RICS Valuation of Development Property Guidance Note (2019)

A

The aim is to provide guidance to valuers on how to value development properties, which are often complex, sensitive and incorporate optionality.
* IVS 410 defines development property as ‘an interest where redevelopment is required to achieve the highest and best use, or where improvements are either being contemplated or are in progress at the valuation date’

This includes:

  • ‘The construction of buildings,
  • Previously undeveloped land, which is being provided with infrastructure,
  • The redevelopment of previously developed land,
  • The improvement or alteration of existing buildings or structures,
  • Land allocated for development in a statutory plan, and
  • Land allocated for a higher value use or higher density in a statutory plan’.
56
Q

How can development property be valued according to RICS Valuation of Development Property Guidance Note (2019)?

A

Residual or Comparable

57
Q

What else is considered in RICS Valuation of Development Property Guidance Note 2019?

A
  • It explores the due diligence required for development property valuations, ensuring that appropriate assumptions and special assumptions can be made.
  • It also discusses how to assess development potential, including seeking advice from external specialists, e.g. planning consultants.
  • Finally, it looks at the four main options for development property, which influence the valuation approach and outcome -develop, develop in phases, sell or dispose, and defer or wait.
  • The Guidance Note explores key areas of risk in valuations of development property and how this can be analysed, e.g. sensitivity analysis, scenario modelling and simulation models (based on probability).
58
Q

What basis of value should I use?

A

The new Guidance Note provides clarification on the appropriate bases of value, as per VPS 4 and IVS 104.

The valuer must ensure that the basis of value adopted is appropriate for, and consistent
with, the purpose of the valuation.

  • Market Value is refined as ‘the value of the development property assuming optimum development, taking into account current and prospective economic and market circumstances and planning conditions’.
59
Q

What Professional Statement covers FVA

A

RICS Financial viability in planning: conduct and reporting (2019) PS

60
Q

What is an FVA?

A

The process of assessing whether a site is financially viable, by looking at whether the value generated by a development is more than the cost of developing it. Typically, this is calculated using a Residual Land Value approach.

61
Q

Who might submit a FVA?

A
  • Applicant
  • Reviewer (on behalf of LPA or themselves)
  • Area-wide viability assessment and representations made in respect of an an area-wide viability evidence base before and during a public examination
  • Assessment part of proof of evidence or an expert’s report before or during an appeal or High Court case
62
Q

What is a benchmark land value?

A

Benchmark Land Value (BLV)is used as the basis of value in a FVA -based on Existing Use Value (EUV), plus a premium for the landowner. This is also known as EUV plusapproach.

63
Q

What is AUV?

A

Alternative Use Value (AUV)can be considered, which is the value of the land for uses other than the existing use. If it is used to assess BLV, however, then it should be limited to those uses which fully comply with up to date development plan policies. If it is assumed that the existing use will be refurbished or redeveloped, then this will be considered as an AUV.

64
Q

In detailed applications, often certain elements are conditioned to be submitted to LPA before milestones of development, what could these be?

A
  • List of drawings the development should be carried out in accordance with
  • In accordance with reports
  • 10% Part M(3)
  • Delivery and servicing
  • Construction Management Plan
  • Details of materials
  • Details of landscaping etc
  • Long Stop Dates
65
Q

What is required in FVA PS?

A

Reports must include a statement that the surveyor has acted objectively, impartially, without interference and with reference to all supporting information

Surveyors must comply with PS2 of RICS Valuation - Global Standards (Red Book)

Terms of Engagement must comply with PS1 of the Red Book, with an additional disclosure that no conflict or risk of a conflict of interest exists, although conflicts can be managed with informed consent

Surveyors must declare where they have previously advised on a planning application or provided ongoing advice to help formulate planning policy

No contingency-based fees permitted

Reports must be based on market-based rather than client-specific information

Reports will be made publicly available, although some confidential information may be withheld, e.g. current or future land assembly negotiations or specific business information

All reports must contain a sensitivity analysis and explanation of risk and return (as part of ‘stand back’ approach to apply a viability judgement to the report)

A non-technical summary must be included to allow non-specialists to interpret the results

66
Q

Name a time you completed a development appraisal with abnormals?

A

Endbery Wharf - I completed a development appraisal in our bespoke BfS excel including assumptions on a target mix of accommodation and an abnormal basement which had not been fully designed. I liaised with Clarion’s cost planning team to agree a build cost including a provisional sum for the basement. In this instance, I did not have a specific mix; I assumed a certain mix based on the area following research into the LPA policy to determine affordable mix / tenure split. I then utilised the LA/Mayoral rates to determine CIL for both residential and commercial.

67
Q

Name a time you ran scenario analysis?

A

St Nicholas House - I prepared an initial appraisal in line with the original planning consent. I outsourced a build cost estimate from an external contractor who told us that the design was expensive to build, so I instructed the architect to create a new scheme that I ran as a sensitivity in the appraisal. However, the cost of re-design and planning fees negated the build cost saving. I compared the two separate schemes and advised on the profit and IRR of each to the business.

68
Q

Name a time you advised the client regarding KPIS on a development appraisal?

A

Tesco site, New Malden - I prepared an appraisal and undertook a sensitivity analysis to advise the business of bid options for the purchase of the site. I liaised with internal teams such as sales, cost planning, design and technical to determine assumptions or any further value add opportunities. I ran sensitivities including 35% and 50% affordable mixes and two different payment structures. I then advised Clarion’s senior leadership team of my final assumptions and expected bid price for the two different payment structures suggested by the vendor. I advised the Senior Leadership Team of how the two different payment structures impacted the IRR of the appraisal with one having a much longer deferred payment meaning we could afford a large amount whilst still hitting Clarion’s internal KPI for IRR.

69
Q

Name a time you advised the client on mix on a development appraisal?

A

West Byfleet - This site opportunity was allocated for residential use and an assumed mix had to be created. To do this I reviewed the local plan and agreed a target residential mix with sales and the affordable housing teams. Further to this, I spoke with Clarion’s partnerships team in regards to the affordable tenure mix. We discussed both 50%/60% affordable mixes and expected grants for additional affordable units. Due to the payment structure, we proposed with the vendor, I could push back the land payments to a golden brick structure, which reduced the interest costs and increased the overall land bid. I advised the Senior Leadership Team that the site should be purchased with 60% affordable including 10% additionality. This reduced sales risk and increased the overall offer due to increased grant funding.

RICS RESIT (22 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions