Development Appraisals

Question 1

What is CIL?

Answer 1

Community Infrastructure Levy. A levy introduced by the boroughs and mayor to contribute to the maintenance and upgrade of infrastructure.

Question 2

What is Section 106?

Answer 2

Section 106 of the Town and Country Planning Act 1990 allows a local planning authority to enter into a legally-binding agreement or planning obligation with a landowner as part of the granting of planning permission

Question 3

What are the differences between CIL and Section 106?

Answer 3

CIL and S106 planning obligations are separate infrastructure funding sources. S106 agreements address site-specific mitigation required to make a new development acceptable in planning terms. Whilst CIL addresses the broader impacts of the development

Question 4

How would you estimate likely Section 106 and CIL contributions?

Answer 4

• CIL can be calculated from the Borough website
• Section 106 costs, speak to key stakeholders and try to get an indicative view from the borough planning team

Question 5

How can a development appraisal be used in valuing developments?

Answer 5

• Development appraisals will provide a NDV
• Developer profit
• land costs
• etc

Question 6

Tell me about planning/costs/GDV/individual site elements in relation to a development appraisal?

Question 7

What is a Monte Carlo simulation?

Answer 7

Monte Carlo Simulation is a type of computational algorithm that uses repeated random sampling to obtain the likelihood of a range of results of occurring

Question 8

What is a sensitivity analysis?

Answer 8

Sensitivity analysis determines how different values of an independent variable affect a particular dependent variable under a given set of assumptions.

Question 9

What variables might you change and why?

Answer 9

• Costs
• Rents
• Yields

Question 10

What factors affect sensitivity of a development appraisal?

Question 11

Tell me about your understanding of incorporating affordable housing into development appraisals

Question 12

Tell me about your understanding of RICS Financial Viability in planning/valuation of development property

Answer 12

The purpose of viability assessment in the plan-making stage is to test, on an area-wide basis, whether the planning policies in a plan are realistic, and that the total cost of the policies will not undermine the deliverability of the plan.

Question 13

What is an S curve?

Answer 13

An S-curve is a mathematical graph that shows the progress of a project over time. Its name comes from its “S” shape. While the S-curve starts off slow initially and looks like a straight line, it eventually accelerates as the project gains momentum

Question 14

Tell me about your due diligence when undertaking a development appraisal

Answer 14

• Engineering investigation
• Planning
• Legal
• Right of Light
• QS

Question 15

What sources of information do you use when undertaking a development appraisal?

Answer 15

In- house, 3rd party, databases

Question 16

How do you calculate GDV/NDV/finance costs/project costs/project timescales?

Question 17

How do you calculate developers profit?

Answer 17

Percentage of GDV or total construction costs

Question 18

What other metrics can you produce form a development appraisal?

Question 19

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

Question 20

What are the procedural similarities between a residual valuation and development appraisal?

Question 21

What are the common output metrics?

Question 22

What is a development appraisal seeking to measure?

Answer 22

Value, viability, profitability, suitability

Question 23

Talk me through the key inputs when undertaking a development appraisal

Question 24

If you do not have site specific figures, how would you account for professional, legal and marketing fees?

Answer 24

Market assumptions (evidence or quotes), 10% - 15% market assumption, legal (quote but typically 0.6%)

Question 25

How is an indicative scheme used in a development appraisal?

Question 26

How can a planning appraisal inform a development appraisal?

Question 27

What do we mean by special assumptions?

Question 28

How can a development appraisal help inform a site acquisition decision?

Question 29

How would you estimate build costs?

Answer 29

Building Cost Information Service

Question 30

Which construction industry inflation indices can you use?

Answer 30

Price Adjustment Formulae Indices (PAFI)

Question 31

Where would you source reliable sales and values information?

Question 32

How can you comparable sales information to inform a development appraisal?

Question 33

What is GDV?

Answer 33

Gross Development Value. It is the value of a development before costs have been deducted

Question 34

What is IRR?

Answer 34

Internal Rate of Return. Internal Rate of Return (IRR) is the annualized rate at which an initial investment grew to reach the ending value from the beginning value.

Question 35

What is profit on cost?

Question 36

What's the difference between a DCF development appraisal and a 'normal' development appraisal?

Question 37

How can you ensure your cash flow is accurate?

Question 37

What is a discount rate?

Question 38

How do you account for affordable housing commitments in a development appraisal?

Question 39

What do we mean by project viability versus project feasibility?

Question 40

What do we mean by risk appetite?

Question 41

One one site, which inputs might change if we are conducting a development appraisal for a specific client versus a generic development appraisal without a specific client in mind?

Question 42

How would you decide what land value to input in your development appraisal?

Question 43

When inputting build costs, what measurement basis do you use?

Question 44

What is a typical contingency rate?

Question 45

When inputting sale value, what measurement basis do you use?

Question 46

How would you reflect the additional costs involved in building contaminated and/or brownfield land?

Question 47

Tell me about software you have used

Question 48

What are the differences between these and when may one be more suitable than another?

Question 49

Give me a limitation of a piece of software you have used

Question 50

What is profit on cost/profit on GDV?

Question 51

When would you use one/both of these?

Question 52

How does this differ according to your client's requirements?

Question 53

What is viability?

Question 54

What is Financial Viability Assessment?

Question 55

Why would a fva be carried out?

Question 56

What are the key viability benchmarks?

Question 57

What the key inputs and outputs for a fva?

Question 58

What is site value for a scheme-specific fva?

Question 59

When undertaking a Local Plan of CIL FVA, how is site value defined?

Question 60

What happens if a scheme is deemed financial unviable for a developer?

Question 61

What are the main forms of finance available to developers?

Question 61

How do you decide what financing rate to use?

Question 62

What usually impacts a client's financing rate?

Question 63

How do you make sensible assumptions about the development programme? Who might you consult?

Question 64

What are lenders current requirements in relation to gearing?

Question 65

What is mezzanine finance and how is it priced?

Question 66

What information do lenders generally require regarding a property before agreeing to lend?

Question 67

What is the difference between senior debt and equity finance?

Question 68

What is a charge?

Question 69

Tell me about an external factor which influences the appraisal process

Question 70

Explain what the Golden Brick means in relation to VAT

Question 71

What tools do Natural England provide to help development achieve biodiversity net gain?

Question 72

What is BNG?

Question 73

What sets out this requirement?

Question 73

What % improvement in biodiversity value should development deliver?

Question 74

Explain how the Residential Property developer tax works

Question 75

What rate is the resi property developer tax?

Question 76

Tell me about a development appraisal you have carried out

Question 77

Tell me about a sensitivity analysis you have carried out

Question 78

Tell me about where you source info and data from for development appraisals

Question 79

Tell me about how you would assist in the selection of appropriate sources of development finance

Question 80

Talk me through your sensitivity analysis process

Question 81

How had the market changed in relation to the Kensington scheme?

Question 82

What degree of sensitivity analysis did you apply in relation to build costs and why?

Question 83

What was the outcome of your reporting to your client?

Question 84

Talk me through the finance options you considered in the modelling options?

Question 85

Did you consider any alternative scenarios outside of those provided by your client when considering project finance? Why was this?

Question 86

How did the timing of the project impact on profit?

Question 87

Were there any limitations within your modelling exercise?

Question 88

Tell me about how you have used a sensitivity analysis to produce a reasoned analysis of risk

Question 89

Talk me through the inputs into the residual valuation in the Farringdon example?

Question 89

Tell me about an example of when you have provided reasoned advice on an appropriate source of development finance

Question 90

Tell me about a development appraisal you have used to advise on the acquisition/disposal of a development site

Question 91

In Farringdon how did you address the market volatility in the sensitivity analysis?

Question 92

Could you provide an example of your sensitivity analysis, including when the site became unviable?

Question 93

In addition to the advice that the site was currently viable what other advice did you give your client in Farringdon?

Question 94

If the site had not been viable, what advice would you have given your client in Farringdon?

Question 95

What did you consider the site configuration complex at Aldgate? How did you address this in your client advice?

Question 96

What were your client's minimum expectations on profit for the scheme?