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APC > DEVELOPMENT APPRAISALS > Flashcards

DEVELOPMENT APPRAISALS Flashcards

1
Q

Did you refer to any guidance?

A

RICS Professional Standard, Valuation of Development Property, October 2019.

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2
Q

How did you assess the site? How big was the development site? Previously developed?

A

The site was a former conservative club extending 0.70 hectares (0.174 acres).

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3
Q

What would you include in your estimate for site preparation costs and how would you estimate them?

A

Demolition, remediation works, landfill tax, site clearance, levelling and fencing.

Obtain a contractors estimate for these works.

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4
Q

How did you decide on your demolition costs?

A

Obtain a contractors estimate for these works.

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5
Q

Talk me through your GDV?

A

I utilised the comparable method to identify transactions of newly constructed flats. I arrived at a GDV of £9,130,000.

I then utilised the investment method and identified transactional evidence of comparable commercial properties and yield evidence.

I adopted a Market Rent of £16 per sqft/£172 per sqm capitalised at a 7% net yield with a 3-month rent free period, which equates to a GDV of £586,733 before adjusting for purchaser’s costs.

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6
Q

Was it a brownfield site?

A

Previously developed land that’s no longer being used.

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7
Q

What was your clients affordable housing allowance?

A

40%

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8
Q

How do we measure land?

A

ILMS – International Land Measurement Standard.
* Land ownership area
* Site area
* Net development area
* Plot ratio
* Site coverage

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9
Q

What was the development programme of the scheme you were valuing?

A

3 Phases totalling 72 Months.

Typically the development programme or period comprises 4 stages.
*Land aquisition
*Preparation period
*Construction period
*Sales period

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10
Q

How did you consider the Local Plan? How did you determine the optimal use for the development?

A

I consulted the LA Local Plan and Planning Policies and established that it was allocated for housing so could be developed for residential.

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11
Q

Talk me through your costs.

A
  1. GDV. £6,086,985.
  2. Development Costs- BCIS/QS. £6,086,985.
  3. External Costs- estimations. £80,340.
  4. Contingency- 5%- deemed appropriate for the nature of this scheme.
  5. Professional fees- 8%- deemed appropriate for the nature of this scheme.
  6. Planning contributions- £48,106-CIL & £6,450- S106- confirmed by the Council.
  7. Sales & Marketing- 2.5% o GDV- in line with similar schemes in the area.
  8. Legal fees- residential- £750/unit.
  9. Letting fees- commercial- 10% of Market Rent.
  10. Land acquisition fees- SDLT + 1.75%.
  11. Finance- 8% debit rate, assuming 100% debt funding.
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12
Q

Land purchase costs?

A

tbc.

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13
Q

Any externals?

A

tbc.

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14
Q

Contingency? When would you forgo a contingency?

A

5%. When you’ve already made an allowance for abnormal costs, when its a low risk environment, strict budget or timeline.

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15
Q

Did you account for professional fees? What determines how much are professional fees? How complex was this project?

A

8%. (Small, bespoke scheme)

If the site demands more professional services, then adopt the upper range e.g. architect, quantity surveyor, civil/structural engineer, planning consultant, project manager.

Usually 5%-10% of build costs

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16
Q

What was the development you appraised and why this development?

A

25 1 bed flats.
18 2 bed flats.
2 commercial units.

Client (LA) authority required us to carry out a viability assessment to determine if it could meet the CIL and S106 criteria.

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17
Q

How did you determine your inputs?

A

Evidence based, BCIS, QS, senior colleague expertise.

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18
Q

How did you arrive at 5% for contingency?

A

I used a 5% contingency because it was a brownfield site and site investigations havent been carried out.

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19
Q

What is the impact of planning requirements on an appraisal?

A

Planning requirement isn’t always negative, but often if its an environmental or substainable (design standards) feature it can enhance the value also.

It can be negative when its for affordable housing and insfrastructure contribution (CIL).

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20
Q

What impacts risk?

A

High risk- bespoke, uncertanty, difficult site, long term scheme.

Medium risk- established demand, popular, brownfield with site investigations.

Low risk- pre sold/pre let, joint venture, greenfield, high demand.

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21
Q

What profit did you apply? ow risky? Profit for resi? For AH? For commercial? What was your blended profit? How did you sense check this?

A

Private Flats 17.50% GDV
Private Houses 15% GDV
Affordable Houses 6% GDV
Shared ownership 6% GDV
Commercial 15% GDV
Blended Rate 15.58% GDV

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22
Q

What percentage did you apply for the sensitivity analysis and what did you apply it to?

A

2.5%

Construction & Sales rate

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23
Q

Was the development viable?

A

Policy compliant, no.
All private scheme, yes.

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24
Q

What were your finance costs and why? 100% debt funded? At what percentage?

A

8% debit rate, assuming 100% debt funding.

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25
Q
  1. How did you decide on your development period? What impact does a longer development period have? (maybe thinking about your finance costs).
A

Planning viability appeal schemes ruled that the longer the scheme, the higher the profit = high risk.
Not getting the return for a longer time (10yrs+ or more)

26
Q

What software did you use to calculate the RLV?

A

Argus

27
Q

What level of affordable housing was viable?

A

None

28
Q

Could your appraisal provide any other output aside from the RLV?

A

Development value, profitabitilty, viability

29
Q

How did you sense check your RLV?

A

Cross-checked it with market evidence.

For viability - if an appraisal for a scheme suggests that without any planning policy it is negative, then it would not be delivered. So why has the applicant paid millions for the site and thousands for the pre planning work..?

  • Are you sure it doesnt add up..? is there a mistake in their/your appraisal..?
30
Q

What documents did you consider for viability?

A

Financial Viability in Planning: Conduct and Reporting (16 requirements)
RICS Prof Standard Assessing Viability in Planning under the NPPF 2019.

31
Q

What is the purpose of a viability assessment?

A

Appraise the financial contribution towards planning pollicy that can be delivered by a particular development whilst also delivering an appropriate profit and an appropriate land value.

Planning policy includes:
*Affordable housing
*CIL
*Highways
*S106

32
Q

Talk me through your costs for the land in Epping Forest.

A

GDV £1,424,471

GDC £695,396

Professional Fees
Architect 10%
Other professionals 0.50%

Disposal Fees
Sales Agent Fee 1%
Sales Legal Fee 1%

Finance
Debit 7%

33
Q

Why did you adopt %?

A

In DVS, a lot of viability work is undertaken and the % adopted has been market tested.

Aware that site specific considerations are required- example, large housing development, loads of roads, green space, say 15%.

But if flitted, limited infrastructure- such as car park, say 2.5%.

34
Q

Why did you adopt 8% finance?

A

This has been market tested by other viability cases completed by DVS in the locality.

35
Q

What factors can affect the outcome of a development appraisal?

A

Market conditions - changes in property prices or rental yields.
Construction costs - fluctuations in material and labour costs can affect the overall development costs.
Interest rates - changes in interest rates affect the cost of borrowing.

36
Q

How do you account for void periods?

A

Apply a higher risk to the profit? TBC.

37
Q

How do you decide on quartile for build costs?

A

I decided on the median value.

I selected the median build costs because it provides a more robust and representative analysis of the data.

By using the median, I was able to obtain a more accurate and reliable estimate of the typical build cost.

38
Q

Why is the profit different for market housing and affordable housing?

A
39
Q

How do you verify and sense check the build costs obtained from BCIS? How might there be inaccuracies and how would you factor this into appraisals?

A
  • Confirm costs with QS.
  • Sense check against clients costs.
  • Cross check with other developments.

BCIS tender into only
Sample of data can be small
Schemes of 30 dwellings or less

40
Q

What is a developers profit, and how is it calculated?

A

A developers profit is the financial return that the developer expects to make from the project.

Usually around 15%-20% of GDV or development costs.

41
Q

What are the limitations/weaknesses of the residual approach?

A

The number of inputs are varied, each of which can be open to debate and interpretation.

Small changes across these inputs can have a significant impact on the residual outcome.

Whilst the residual method forecasts the development of a scheme over a period, usually the appraisal inputs are assumed as of today, the assessment is limited to a point in time.

Market conditions can fluctuate significantly over short periods, which can quickly make the results of the appraisal outdated.

42
Q

Is the comparable approach of the residual method weak?

A

This is where the valuer assesses direct land sales.

A less robust approach because:
- all development sites are unique
- full details of the land sold often unknown
- does not reflect the approach a developer would take.

43
Q

What is affordable housing?

A

Social rented, affordable rented, intermediate housing, shared owner housing.

Social rented - 35-40% of MV
Intermediate housing - 55% of MV

44
Q

How did you arrive at a contingency rate?

A

2% - 5% of build costs
Greenfield sites - lower contingency allowance
Brownfield sites - higher contingency allowance

45
Q

Where do you find the CIL rate?

A

In the local plan

46
Q

What is the role of sensitivity analysis?

A

Accesses how changes in key valuables impact the over profitability of the development, eg. 5% increase in construction costs or a 10% decrease in GDV.

It helps to identify the most sensitive factors and provides insights into the risks associated with the project.

47
Q

What are the steps to a residual calculation?

A

Gross Development Value minus Total Development Cost (inc. profit) = Land Value.

48
Q

What are the steps to a development appraisal?

A

A calculation or series of calculations to establish the value, viability and profitability of a proposed development.

49
Q

What is the current interest rate?

A

Bank of England - 5%

50
Q

What is LIBOR?

A

A benchmark interest rate at which major global banks lend to one another in the international market for short term loans

51
Q

Why did you apply that %?

A

I spoke to an exterior colleague, and they advised that this is the level that is being achieved for this type of property.

52
Q

What do you mean by current value?

A

I meant fair value.

53
Q

What is the NPPF?

A

Within NPPF talks about the requirement and demand for affordable housing and how LA can make prevision for affordable housing within their boundary.

54
Q

What is the RICS Guidence Note, Valuation of Development Property, 2019?

A

*Have to cross-check with market evidence
- look at comparable land transactions

*Sensitivty Analys
- everything is assumption base, have to understand the change the inputs and how it impacts on your valuation

55
Q

What is the RICS Professional Statement ‘Financial Viability in Planning: Conduct and Reporting, 2019’?

A

Provides guidence for producing financial viability assessments for affordable housing.
*Executive summary
*The way to record imputs
*Steps to follow: GDV, GDC..

56
Q

What is the difference between a residual and development appraisal?

A

Development Appraisal
*land value = what sort of profit will the scheme give you

Residual Method
*includes profit = know the profit, need to establish the land value

57
Q

What method did you use for the viability assessment?

A

Residual Method

Tried to assertain the market value of the land assuming 20 flats would be constructed on that site.

58
Q

What is the min. level of developers profit?

A

17.5% of GDV

59
Q

How did you establish the GDV?

A

I utilised the comparable method to identify market transactions of newly constructed flats, near to the subject.

I also used the investment method to establish the market rent of the ground floor commercial space and capitalised it by a net initial yield.

60
Q
A

APC (10 decks)

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