Development Appraisals (L3) Flashcards
How do you calculate ROCE?
Net operating profit / Capital Employed
How do you calculate GPM?
Difference between POC and POGDV
Gross profit / revenue x 100
Profit on GDV = 20-25%
Profit on cost = 15-20%
POC in more challenging markets
What is GPM and ROCE
GPM is the degree at which a business activity generates money
ROCE is the efficiency use of capital
Sensitivity analysis?
Quantifies risk.
Simple, Scenario, MonteCarlo
Site investigations and DD before an appraisal?
Topo
Contours
Local Policy
Title
Surveys
Ground Conditions
Services
Legal searches (ROW/TPO/covenants)
Types of option agreement?
Promote site for LP - option to buy at a market discount
Call-buyers right to buy
Put-sellers right to sell
Cross - both right to buy or sell
Reverse - repurchase rights following trigger
Overage requirements? The key elements
Duration
Trigger
Calculation
Amount
Securing the payment (charge over land/ransom strip)
What’s a ransom strip
Land adjacent that is key to unlock development or over Access
Random strip case law
Stokes V Cambridge
1/3
What are Pre Emption Rights
Contractual agreement- the right to be offered land before the market is
If VAT is opted on land, at what %?
20%
What SDLT is charged on non resi properties?
Over £250k is 5%
You Pay SDLT on Land + VAT
What is SDLT?
Paid on the purchase of an interest in land
What is residential developer property tax?
Tax of 4% on developers who earn >£25m profits.
Brought in in April 2022
What are the corporation tax thresholds?
19% - up to £50k profits
25% tax - £50k + profits
What is a capital allowance
Tax deductible expense on qualifying capital expenditure eg Equipment/Machinery/Vehicles
What is capital gains
Tax on the profit realised on a transaction
What is zero rated mean?
New build housing for example. No VAT on labour, goods etc
What is the polluter pays principle
Environmental protection act 1990
Polluter of contaminated land must pay.
If can’t identify the polluter, landowner pays.
LA investigates the pollutant/contamination
Name some land contaminants
Waste disposal, landfill, tanks
Entails, oils, asbestos
What is the Golden Brick
A point in construction whereby the 1st brick over the foundations is laid. Can then be classed as a residential dwelling (thus zero rated and can recover VAT)
What is a mezzanine finance?
Additional capital at higher IR.
Senior debt is the first tranche paid back first
What DICS literature does Viability refer to?
RICS viability in planning 2019
Difference between Viability and Feasibility?
V - value generated > cost over project lifetime
F - state something can actually be achieved
What is the industry standard GPM?
FY 22
Barratt’s 23% GPM & 30% ROCE
Bellway 22% GPM & 19% ROCE
What cash flowing of finance do you get?
S curve (important given IR is paid on the drawn down balance)
Eg BUILD COST
Straight line (equal tranches)
Eg LAND or HOLDING COST
Where would you source finance costs?
Equity
Debt
Internal
What would you assume for a finance rate?
Comitment fee 1%
Exit fee 1%
IR - 5.25% + 2%
Legal fee?
Loan to value or loan to cost- which is a higher %?
LTV - 60-70%
LYC - 80-90%
Outline inputs of a development appraisal?
GDV
BUILD COST
CONTINGENCY
PROFESSIONAL FEES
PLANNING FEES
LAND AC COSTS
LEGAL FEES
S&M FEES
FINANCE COSTS
LAND + TX (SDLT/VAT)
GPM
Residua Val vs Dev appraisal?
Residual val
AT VAL DATE - market input - RLV
Dev appraisal
Tool to financially assess viability/feasibility - client input - sensitivity
Name some developer risks
Delays
Costs
Market shift
Contractors unreliable
What is an FVA?
Financial Viability Assessment
Balanced developer aspirations with planning system aims.
Submitted by applicant/part of wider reps/during a case. Must be objective.
Baseline land value (value land as existing) + premium to sell
If BLV > RLV, site is not viable
How would you find BC if you didn’t have an internal QS?
Build cost information service (RICS service that is updated monthly with construction data)
Input :
m2
Date
Location
Property type
Then choose upper/lower quartile
What are the drawbacks of using BCIS?
No spec
Broad
Econ of scale
External works not accounted for
GIA only
Rough BC %
Rough Prelim %
Rough professional fee %
BC: 30% GDV
PRELIM: 12% BC
Prof (design architect, Civil eng, Struct eng, topo, surveys, S38 fees
10-20% BC
Planning fees and any upcoming changes?
£462/plot for a full application (max £300k)
Being increased by TCPA Amendment by 35% in 2024
Land ac costs?
SDLT - 5% land
AGENT FEE - 1% land
Legal costs?
Land at: 20k
Aff sale: 10k
0.5%
Contingency
3% BC
Industry average is 5-10%
What is indexation?
System to connect prices and asset values.
Produced by ONS.
Calcs costs of inflation
Example of indexation?
RPI (all items)
Suitable Alternative Natural Green Space - contribution for Ch.Bchw SAC mitigation:
£3k/1B
£4K/2B
Current charge times by the index figure at payment divided by index figure at UU date = indexed charge
What was the inflation paid for the SAC mitigation in Linmere?
Check
Why was the BC lower at Alconbury for your Standard Housetypes?
No DD fees
Designed engineered to my client
Economies of scale (labour/material)
How did you undertake the comparable analysis in Wycombe?
Established a PSF value of the area.
Sourced comparable transactions,
Collated in schedule,
Analyse,
Adjusted,
Determined PSF comp. For each bed type.
Cross referenced with agents pricing of my clients standard HT’s.
What were the high level inputs at Wycombe in your dev appraisal?
24% GPM
£180 bc
£470 psf
£5m LV Agreed in advance.
How did you cash flow the programme and costs at Wycombe?
Construction team produced a programme following instruction for 4pcm sales rate.
S curve build costs
Planning and Prof fees prior to SOS
aff income GB and monthly vals
Private income as per the sales rate
What was the GDV, BC and Land value at Linmere?
£55m GDV (£30m affordable)
£26m BC
£16.25 LV
Tell me about the Natural England charged on Linmere?
This was an unforeseen moratorium on development within a 12km radius of a SAC (Chiltern Beechwood’s) enforced by Natural England.
This delayed planing by 1 year. Affected appraisal (ROCE but not benefitting from sales price inflation being a largely pre sold scheme)
£880k (charged depending on house bed type) £3k 1B and 4K 2+B to contribute to a SANG (suitable alternative Natural green space)
Tell me how you calculated the RPI on the SANG Charge
I referred to the RPI on the BCIS.
Using proposed calculation: (880k * index at payment/index at date of UU)
I ran 3 scenarios of payment.
1.paying in 25% tranches per 50 units
2.50% per 100 units
3.100% upon 1st occupation
Indexation charges incurred:
1.£170k
2.1£40k
3. £85k
Considering the cost increase and delays, the advice was to pay as soo as possible as to mitigate the indexation charge to minimise GPM dilution.
In fact, negotiated if paying at SOS we could avoid any indexation, agreed with the council.
Why were your clients HT’s more economical to build at Alconbury.
Reduced DD fees
Std floor plate design
Value engineered
Contractor relationships
Elevational treatments not specified in decision notice.
What other options at Alconbury could you have to reduce BC?
S73 - Material amendment to condition
S96a - NMA
