Development Appraisals Flashcards
What is a development appraisal?
A model used to calculate the financial viability of a development. It is normally used to calculate either the land value or development profit.
What is a residual land value?
How much the land is worth. Calculated by GDV minus Total Development Costs minus profit = residual land value.
How is interest or finance costs calculated on a development appraisal?
- Model the debt in a discounted cash flow based on the appropriate LTC.
- Interest accumulates on half the development costs excluding land and profit over the whole construction period.
- 100% of construction costs are borrowed over half the construction period
What is Profit on Cost?
The profit of the project expressed as a percentage of total development costs.
Profit = GDV - Construction Costs - Finance Costs - Land Value
How is land valued during the course of development?
- The value of the land plus the costs spent at the valuation date.
- The completed development value minus the costs remaining to be spent at the valuation date.
What is s106?
A section 106 agreement is a legally binding agreement (planning obligation) between a local planning authority and developer.
It is designed to mitigate the impact of a development on the local community and infrastructure.
What does a s106 cover?
- Affordable housing contributions
- Infrastructure provision such as roads and schools
- Carbon offsetting: planting more trees
- Community benefits: Training the local community
How is s106 calculated?
- Calculated on a case by case basis depending on the needs of the council
- For residential developments, it factors in the housing mix and build costs
- London Assembly - appraisals that show 35% affordable can go under a fast track route.
What is CIL?
- The Community Infrastructure Levy (CIL) is a charge that local authorities can set on new development in order to raise funds to help fund the infrastructure, facilities and services - such as schools or transport improvements - needed to support new homes and businesses.
How is CIL calculated?
- CIL rate (per sq meter) multiplied by the net chargeable floor space of the development
- Net chargeable floor space = Total GIA of the development minus any GIA of existing buildings that have been in lawful use for at least 6 months within 3 years before planning permission was granted.
What is a CIL rate?
CIL rates are based on the financial viability of the planning use of the development. (Maidstone Borough Council).
What were the hotel build costs (High Street, Cheltenham, Development)?
£12,350,000 (£95,000 per bed)
130 bed scheme
What was the IRR and Profit on Cost for the Development (High Street, Cheltenham)
5-year IRR: 5.7%
Profit on Cost: 15.5%
Profit on Cost excluding finance:-10.5%
What is the Average Daily Rate (ADR)?
Room Revenue / number of rooms sold
Represents the average revenue per occupied room.
What was the ADR and Occupancy for the project? (High Street, Cheltenham)?
ADR = £79.20
Stabilised Occupancy = 70%
How did the construction costs per bed, daily room rate and exit yield affect the profit on cost? (High Street, Cheltenham)
> Increasing the ADR to £90 (+10%) and construction costs reducing by 10% led to a 24% Profit on Cost (Excluding finance)
> Increasing ADR to £90 (+10%) and exit yield reducing by 100 bps to 7.00% increased Profit on Cost to 30% (Excluding finance)
What is a better metric ADR or RevPAR?
Revenue per Available Room (RevPar) = Total Revenue divided by total rooms.
RevPar does not factor in occupancy. Hence more comparable between hotels as one may not get sight of a hotels occupancy levels.
What were the build costs for the care home (Office, Tunbridge Wells)?
Build Costs = £12.3 million (£150,000 per bed)
Beds = 82
What percentage of the Tunbridge Wells population is over 60?
According to 2021 census 53%
What was the land value and profit metrics (Office, Tunbridge Wells)?
Land Value = £4 million
Profit on Cost = 12.9%
Profit on Cost (Excluding finance) = 20%
What surveys are needed for planning permission?
Topology surveys: 2D and 3D mapping of the terrain of the land. Including man made and natural elements and the gradient of the land.
Ecological survey: Assessment of the impact a proposed development would have on the environment, local flora and fauna.
Flood Risk survey: a detailed evaluation of the potential flooding at a specific location
How was the GDV determined? (High Street Cheltenham)
- Stabilised NOI (Profits method of valuation) capitalised at 8.00%
- Stabilised NOI of £1.4 million
- Less purchaser costs of 6.8%
- GDV of £16.6 million
What is a section 278 agreement?
A legal binding agreement with the local authority that allows a developer to make alterations or improvements to a public highway as part of planning permission.
The developer will cover the costs of the highway works.
What is planning permission needed?
- To build something new
- Make a major change to your building (such as building an extension)
- Change the use of your building
