Development Appraisals

Question 1

What are typical land prices for resi development in your area?

Answer 1

Depends on the area, range of factors etc

Question 2

How much will a developer accept in a poor market?

Answer 2

15% profit on cost and over £1,000,000 profit

Question 3

What is marriage value?

Answer 3

created by a merger of interests - can be physical or tenurial.

Undertake abefore and after valuation and caluclate the level of marriage value created.

Typical negotiated outcome is split the marraige value created 50/50 or divide it pro-rata to the value of the individual interest.

Question 4

Justify the % for fees?

Answer 4

professional fees - 10% of total Dev

Architect @ 3%
Quantity Surveyor @ 1.5%
Strucutural engineer @ 1.5%
M and E @ 1%
Highway engineer @ 1%
Planning consultant @ 1%
Services @ 1%
building regulations @ 1%
CDM @ 1%
BREEAM @ 1%

Letting legal fee @2.5%
Letting agent @ 10%
Sale legal @ .25%
Sale Agent @ 1%

Question 5

Sensitity Analysis?

Answer 5

Downfall is sensitive to inputs, mitigate with sensitivity analysis.

Show how profit and values depending on a range of things:

yields, build costs, rental/sales values, land costs.

Question 6

How did you work out your GDV?

Answer 6

Comparative and Investment
Based on comparable evidence of similar units/schemes.
Spoke to agents who provided this who were active.
Provided yields and lettings values, rent free and voids. Based on schemes formerly instructed on.

Question 7

What was your advice to your client?

Answer 7

Based on inital conversation around risk, profit level the scheme was viable and i assisted in preparing for a bid -

Question 8

What was your thought process in the site appraisal?

Answer 8

was it viable, in the current market, proposed purchasor, will it meet clients requirements, is the information supplied relevant.

Question 9

What repayment model did you use for finance?

Answer 9

Debt financing spread accross the term.

Question 10

Clawback and overage?

Answer 10

Clawback - share between in the uplift of value if a certain future event occurs. - sell on clause

Overage - arrangement for sharing recipts over original forecasted recipts - performance clause

Question 11

Planning obligation costs?

Answer 11

S.106 or CIL

S.106 - a cost of XXX for schools and road improvement

CIL -

Question 12

What is placemaking?

Answer 12

economic development strategy - used to make economic progress through public amenities.

Question 13

Inputs in residual valuation?

Answer 13

GDV
TDC
Fees
contigency
build costs
planning
profit
acquisition costs
sales costs

Question 14

Whats in TDC?

Answer 14

Site preperation
Planning Costs
Building Costs
Professional fees
Contingency
Marketing costs & fees
Finance costs

Question 15

Two main methods of development finance?

Answer 15

Debt Finance - lending money from a bank or other funding institution

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

LTV is typically 60% but in difficult market, lenders may adopt a LTC ratio of 60%.

Inerest is added tot eh loan as the project proceeds.

Senior debt is the first level of borrowing which takes precedence over secondary/mezzanine finance.

Question 16

Guidnace note - valuation of development property 2019

Answer 16

A supplement to IVS 410 - development property.

Interests 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.

assumptions and special assumptions must be clearly identified in the valuation report.

Common basis is MV in which case there is an assumption of ptimim development which takes into account current and prospective economic and planning conditions.

Best practice avoids reliance of a single approach.

DCF for complex development methods.

Further risk and return levels and assumptions should be explicitly stated in the valuation report.

Reported as a single figure, unless there is potential for significant variation (which should also be reported).

Question 17

What is hope value?

Answer 17

The value arising from any expectation that future circumstances affecting the property may change.

2 examples - prospect of securing planning where no planning exisit OR realisation of marriage value arising from the merger of two interest in land.

Question 18

Difference between appraisal and residual?

Answer 18

Residual is used to calculate the land value

Appraisal is used to see if the proposed scheme is viable or if legal obligations are too expensive.

Question 19

What are PDRs?

Answer 19

Quite simply Class O of the GPDO allows for the conversion of offices to any number of dwellings. These can be houses or flats and can be carried out in any part of England as long as it is not a listed building, safety hazard zone, military explosives storage area (probably a good idea!) or an ancient monument.

From March 2021 new rules, allow:
Class MA allows buildings and land within Use Class E (commercial, business and service) to be converted into dwellings. Before any development is carried out, an application for prior approval needs to be made and a number of criteria must be met. Amongst the criteria, the building needs to:

have been vacant for three months prior to the application;
have been in commercial use for at least two years. The range of eligible uses are set out within the regulations;
propose no more than 1,500sqm of floorspace change.

Question 20

What are the limitation of BCIS?

Answer 20

Only as good as data input into system
Time lag - especially now with increasing building costs
Not always accurate as all types of build are not of same specification.

Question 21

What does BCIS stand for?

Answer 21

Building Cost Information Services - owned by RICS