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APC 2024 > Development Appraisals > Flashcards

Development Appraisals Flashcards

1
Q

What is CIL?

A

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

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2
Q

What is Section 106?

A

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

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3
Q

What are the differences between CIL and Section 106?

A

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

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4
Q

How would you estimate likely Section 106 and CIL contributions?

A
  • 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
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5
Q

How can a development appraisal be used in valuing developments?

A
  • Development appraisals will provide a NDV
  • Developer profit
  • land costs
  • etc
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6
Q

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

A
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7
Q

What is a Monte Carlo simulation?

A

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

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8
Q

What is a sensitivity analysis?

A

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

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9
Q

What variables might you change and why?

A
  • Costs
  • Rents
  • Yields
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10
Q

What factors affect sensitivity of a development appraisal?

A
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11
Q

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

A
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12
Q

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

A

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.

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13
Q

What is an S curve?

A

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

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14
Q

Tell me about your due diligence when undertaking a development appraisal

A
  • Engineering investigation
  • Planning
  • Legal
  • Right of Light
  • QS
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15
Q

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

A

In- house, 3rd party, databases

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16
Q

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

A
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17
Q

How do you calculate developers profit?

A

Percentage of GDV or total construction costs

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18
Q

What other metrics can you produce form a development appraisal?

A
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19
Q

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

A
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20
Q

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

A
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21
Q

What are the common output metrics?

A
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22
Q

What is a development appraisal seeking to measure?

A

Value, viability, profitability, suitability

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23
Q

Talk me through the key inputs when undertaking a development appraisal

A
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24
Q

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

A

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

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25
Q

How is an indicative scheme used in a development appraisal?

A
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26
Q

How can a planning appraisal inform a development appraisal?

A
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27
Q

What do we mean by special assumptions?

A
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28
Q

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

A
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29
Q

How would you estimate build costs?

A

Building Cost Information Service

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30
Q

Which construction industry inflation indices can you use?

A

Price Adjustment Formulae Indices (PAFI)

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31
Q

Where would you source reliable sales and values information?

A
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32
Q

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

A
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33
Q

What is GDV?

A

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

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34
Q

What is IRR?

A

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.

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35
Q

What is profit on cost?

A
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36
Q

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

A
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37
Q

How can you ensure your cash flow is accurate?

A
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37
Q

What is a discount rate?

A
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38
Q

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

A
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39
Q

What do we mean by project viability versus project feasibility?

A
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40
Q

What do we mean by risk appetite?

41
Q

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?

42
Q

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

43
Q

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

44
Q

What is a typical contingency rate?

45
Q

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

46
Q

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

47
Q

Tell me about software you have used

48
Q

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

49
Q

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

50
Q

What is profit on cost/profit on GDV?

51
Q

When would you use one/both of these?

52
Q

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

53
Q

What is viability?

54
Q

What is Financial Viability Assessment?

55
Q

Why would a fva be carried out?

56
Q

What are the key viability benchmarks?

57
Q

What the key inputs and outputs for a fva?

58
Q

What is site value for a scheme-specific fva?

59
Q

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

60
Q

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

61
Q

What are the main forms of finance available to developers?

61
Q

How do you decide what financing rate to use?

62
Q

What usually impacts a client’s financing rate?

63
Q

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

64
Q

What are lenders current requirements in relation to gearing?

65
Q

What is mezzanine finance and how is it priced?

66
Q

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

67
Q

What is the difference between senior debt and equity finance?

68
Q

What is a charge?

69
Q

Tell me about an external factor which influences the appraisal process

70
Q

Explain what the Golden Brick means in relation to VAT

71
Q

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

72
Q

What is BNG?

73
Q

What sets out this requirement?

73
Q

What % improvement in biodiversity value should development deliver?

74
Q

Explain how the Residential Property developer tax works

75
Q

What rate is the resi property developer tax?

76
Q

Tell me about a development appraisal you have carried out

77
Q

Tell me about a sensitivity analysis you have carried out

78
Q

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

79
Q

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

80
Q

Talk me through your sensitivity analysis process

81
Q

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

82
Q

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

83
Q

What was the outcome of your reporting to your client?

84
Q

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

85
Q

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

86
Q

How did the timing of the project impact on profit?

87
Q

Were there any limitations within your modelling exercise?

88
Q

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

89
Q

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

89
Q

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

90
Q

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

91
Q

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

92
Q

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

93
Q

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

94
Q

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

95
Q

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

96
Q

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

APC 2024 (10 decks)

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