DEVELOPMENT APPRAISALS Flashcards
What is a Monte Carlo simulation?
A Monte Carlo simulation is a method of using random sampling to estimate complex outcomes and assess uncertainty in a model or process.
Tell me about planning/costs/GDV/individual site elements in relation to a development appraisal?
In a development appraisal, “Individual Site Elements” refer to site-specific factors such as location, size, topography, and existing infrastructure. These elements affect both the costs of the project and its Gross Development Value (GDV).
Tell me about your understanding of RICS Financial Viability in Planning/Valuation of Development Property.
Provides standards and guidance for financial viability assessments in development property, ensuring consistency and transparency in the valuation process.
Talk me through the key inputs when undertaking a development appraisal.
Land value: The cost of acquiring the land for the development.
Development costs: Expenses related to construction, design, planning, and legal fees.
Residual value: The estimated value of the completed development after deducting costs.
Developer’s profit: The anticipated profit margin for the developer.
Which construction industry inflation indices can you use?
Construction Price Index (CPI)
What is IRR?
It’s a financial metric that measures the profitability of an investment. It’s the discount rate at which the net present value (NPV) of an investment becomes zero.
In other words, it’s the rate at which the investment’s expected cash inflows equal its initial cash outflows (breaks even).
What’s the difference between a DCF development appraisal and a ‘normal’ development appraisal?
DCF development appraisal provides a more in-depth analysis of cash flows, using discounting and calculating NPV & IRR, while normal development appraisal offers a broader overview with less detailed cash flow analysis.
What is a discount rate?
Rate used to discount future cash flows to present value
Accounts for time value of money and risk
Higher discount rate = lower present value
What is mezzanine finance and how is it priced?
Hybrid financing between debt and equity
Includes equity features like warrants or conversion rights
Priced based on risk, maturity, equity features, and market conditions
What information do lenders generally require regarding a property before agreeing to lend?
Development plans
Planning permission
Projected income and expenses (appraisals)
Environmental impact
Contracts
What is the difference between senior debt and equity finance?
Senior debt is a loan with a fixed return and priority over equity claims, while equity finance involves ownership in the company with potential for higher returns but also higher risk.
Explain what the Golden Brick means in relation to VAT.
The Golden Brick is a term used in the UK to describe a VAT-exempt property. Housing associations take on units when construction starts.
Tell me about a development appraisal you have carried out. What was the background to your development appraisal here?
I have completed many development appraisals, in particular for FVAs. I have just completed a development appraisal for an FVA for a site in Harrow. This was an assessment to consider whether a new development could contribute affordable housing.
What tools do Natural England provide to help developments achieve biodiversity net gain (BNG)?
Biodiversity Metric - Primary tool which calculates the number of units.
Also provides an offsite marketplace where biodiversity cannot be delivered on site.
Tell me about a development appraisal you have used to advise on the acquisition/disposal of a development site
Urmston, valuation of development land to inform the acquisition. Carefully considered all inputs to the appraisal.
