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APC - JM > Development Appraisals > Flashcards

Development Appraisals Flashcards

0
Q

And what measurement basis do you calculate your bill costs?

A

GIA basis

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1
Q

Where would you get your build costs from?

A

BCIS (Building cost information service)

Information sourced from recent construction projects.

The client (in-house QS)

Alternatively, I would speak to a 3rd party specialist such as a building surveyor.

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2
Q

How do you work out your contingency rate?

A

Typically this range is between five and 10% dependent on risk.

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3
Q

What is the contingency?

A

Contingency is there in case of any unpredictable issues that arise such as additional construction costs.

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4
Q

How do you reflect for letting void?

A

This could be reflected in the cash flow at the end of the construction process.

Alternatively you can reflect it within the yield.

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5
Q

How would you measure and industrial site?

A

I haven’t had any experience with industrial however I believe you can measure it using ProMap.

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6
Q

How do you calculate the gross development value (GDV)?

A

It would depend on what type of development it was however, for an office building I would gather compatible evidence of rental values and capitalise this at an appropriate market derived yield.

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7
Q

Where would you take account of planning costs?

A

This would be accounted for as additional costs.

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8
Q

What finance rate did you use in your development appraisal?

Follow up question: Where did you get this finance rate from?

A

6%

I ascertained this rate from my client as it is the rate at which they could borrow money.

I spoke with one of my directors who had recently worked on a similar project and informed me that 6% was an appropriate rate to use.

Alternatively you could look at current 10 year swap rates (1.4% approximately)and add a percentage for risk.

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9
Q

How did you calculate professional fees?

A

Professional fees tend to range between 10 to 15% plus VAT of construction costs.

In this case the professional fees were calculated at 12.5%

A lower percentage would be appropriate for larger projects.

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10
Q

What professional fees are normally included?

A 
Architect
CDM consultant
M&E consultant
Structural engineer
Environmental consultant
Project manager
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11
Q

Where does the information provided by BCIS come from?

A

This is an RICS service. Updates are obtained monthly from recent contract prices/tenders agreed.

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12
Q

What is the methodology of a residual site valuation?

A

Gross development value

Less total Development cost

Less developers profit

= Residual site value

GDV – TDC – developers profit = Residual value

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13
Q

How do you calculate the profit of a development?

A

Gross development value

Less total development costs

Less residual value

= profit

GDV – TDC – residual value = profit

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14
Q

What is overage?

A

Overage is an pre agreed arrangement made between the vendor and the developer for the sharing of profits received over and above the profit originally expected.

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15
Q

What is a typical LTV (loan to value) ratio?

A

Typically in the region of 60%.

It used to be towards 70% however lenders are now more risk averse.

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16
Q

What are the main forms of development finance used by developers?

A

Debt funding – money from a bank/financial institution

Equity funding – selling shares in a company, JVs or using your own money.

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17
Q

What does a developer typically borrow money for?

A

Site purchase

Construction costs

Holding costs

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18
Q

How do you calculate the finance for land purchase?

A

On a straight line basis compounded over the length of the development period.

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19
Q

How do you calculate the finance required for the construction period?

A

You based this on an S curve. This assumes total construction cost over half the time period.

Usual assumption is to halve the interest.

Reflects more accurately when monies are drawn down.

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20
Q

What are three levels of debt?

A

Senior debt

Secondary funding

Mezzanine funding

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21
Q

How is interest calculated on development finance?

A

On a rolled up basis

i.e. Added to the loan as the project proceeds

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22
Q

What is sensitivity analysis?

A

This is required to analyse key variables such as GDV, build costs and the finance rate.

Slight changes in key variables can have a large impact on the profitability of a development.

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23
Q

What forms of sensitivity analysis are there?

A

Simple sensitivity analysis

– On key variables (rent, Build costs, yield and finance rate)

Scenario analysis

– On variables such as content/timing/costs

Probability analysis

– Probability theory (oracle crystal ball software)

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24
Q

What is a profit erosion period?

A

The length of time it takes for the development profit to be eroded by holding charges following completion.

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25
Q

What other methods of finance are there?

A

Joint ventures

2+ parties join together to develop

Forward sales

Scheme is presold to an investor/occupier

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26
Q

What planning costs would you consider in your appraisal?

A

Depending on the size/type of the proposed scheme I would take into consideration:

  • Section 106 payments
  • C I L charges
  • Section 278 payments
  • Planning application
27
Q

You say you’ve read the RICS valuation information paper no 12.

When was this published?

Can you tell me what this covers and some of the key points?

A

It was published in 2008.

It was an RICS information paper on the valuation of development land, but has now been withdrawn.

It provides useful guidance for valuers on the whole process of valuing development land from Establishing the facts through to Reporting the valuation.

It also provides guidance on:

  • Assessing development potential.
  • Using the residual and comparable methods.
  • Assessing land value.
28
Q

What is C I L?

A

C I L is the community infrastructure levy.

This sets out payments made by developers to LPAs to raise funds for local infrastructure.

Payments are based upon the SQM or the additional SQM of floor area.

Payments are established via a charging schedule and are non negotiable.

29
Q

What is included in the preconstruction period?

A

This could be:

Site assembly
Obtaining vacant possession
Planning
Agreeing architectural designs
Soil investigations
30
Q

What is included in the construction period?

A

Decontamination
Demolition
The main build

31
Q

What is reflected in the post construction period?

A

Letting voids
Rent free periods
Sale/letting

32
Q

What is a CDM co-ordinator?

A

This has now been replaced by The principal designer.

This is someone who will monitor the H and S of the entire process of a development.

33
Q

What is an environmental impact assessment?

A

This is a report which is required prior to planning permission being granted which assesses the environmental effects of a proposed development.

34
Q

What act governs the section 106 agreements?

A

Town and country planning act, 1990

35
Q

What regulations govern CILs?

A

Community infrastructure regulations, 2010. (Updated 2015)

36
Q

What impact would there be on your development appraisal if you were undertaking it on behalf of a charity looking to purchase the property?

A

I’ll take into consideration that there would be no SDLT payable.

37
Q

What is BCIS?

A

The building cost information service, created by the RICS.

It’s gathers information from recent construction projects and from relevant contractors.

38
Q

Why would you use Excel instead of Argus?

A

For better accuracy

No hidden calculations

No hidden assumptions

39
Q

What macro economic factors are you aware of that have the potential to impact on the feasibility of a development?

A

Brexit

This has led to uncertainty

– rents have softened

– incentives have increased

– voids have increased

– yields have hardened (currency advantage)

40
Q

What national planning guidelines are you aware of?

A

The National planning policy framework.

41
Q

What forms of sensitivity analysis are you aware of?

A

Simple sensitivity analysis

  • Analysis of key variables

Scenario analysis

  • changing key parts of a scenario
  • i.e. Content or timing

Simulation analysis

  • Testing probability (crystal ball software)
42
Q

What would you say are some key variables of a development appraisal?

A

Yields

Build costs

Finance rate

Rent

43
Q

Are there any exemptions from CIL?

A

Minor developments are exempt

100 m² or less

44
Q

How is C I L calculated?

A

This is calculated using a charging schedule.

The payment is based on the m² of additional floor area

45
Q

What is an AVM?

A

An automated valuation model

– Argus

46
Q

What are the limitations of an AVM?

A

Cost

Some assumptions are hidden

Some calculations are hidden

– hard to determine where something has gone wrong.

47
Q

What is an IRR?

A

And IRR is the discount rate which is required in order to achieve an NPV of 0.

48
Q

What are some typical development costs that you include in your appraisals?

A 
Site preparation (demolition)
Planning costs
Build costs
Professional fees
Contingency
Marketing
Letting/disposal fees
Developers profit
Finance
VAT
49
Q

What would you typically include in your professional fees?

A

Professional fees typically range from 10 to 15% plus VAT.

Includes:

Architect 
M&E consultant
Structural engineer
CDM coordinator
Planning/environmental consultant
Quantity surveyor
50
Q

What fees would you typically associate with the disposal?

A

Agent fee – 1%

Legal fee – 0.5%

51
Q

What fees would you typically associate with a letting?

A

Agent fee – 10%

Legal fee – 5%

52
Q

What would you typically include with acquisition costs?

A

Stamp duty

Agent fee

Legal fee

Survey/planning

53
Q

What are section 278 payments?

A

Payments for highway works

54
Q

What is a development appraisal?

A

It is used to assess the value, viability, profitability or suitability of a development scheme and typically uses clients inputs.

55
Q

What is a residual valuation?

A

It is used to establish the value of a site at one moment in time using market inputs.

56
Q

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

A

A residual valuation establishes the value of a site at one moment in time using market inputs, where as a development appraisal establishes the viability, suitability or profitability of a development scheme typically using client inputs.

57
Q

Are you aware of any update to the Valuation Information Paper 12?

A

The advice has been replaced by IVS 410.

58
Q

What is mayoral CIL?

What is the charge rate?

A

Mayoral sale was introduced to help fund crossrail.

The charger rate is £50 psm

59
Q

What are the CIL charges in Camden?

A

Office – £45 psm

60
Q

What were the estimated CIL charges for Greville Street?

A

£15,000

61
Q

What are the C I L charges in Whitechapel?

A

Office – £90 psm

Residential – £200 psm

62
Q

What were the C I L charges on Turner Street?

A

£50,000

63
Q

What were the C I L charges on Settles Street?

A

£50,000

64
Q

What were the C I L charges on the development in Whitechapel?

A

£125,000

APC - JM (11 decks)

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