Development Appraisals Level 1 Flashcards
What is a Section 106
A site specific legally binding agreement with a landowner as part of the grant for planning permission
What is a CIL?
A tariff based charge set by local authorities on new development
can contribute to schools, health services, tansport improvement
What is the difference between CIL and S106
S106 is negotiable and decided on case by case basis where CIL is a fixed charge
What costs are associated with a development appraisal?
Site Preparation
Planning Costs
Building Costs
Professional Fees
Contingency
Finance
Developers Profit
Marketing
What is included in site preparation?
Demolition
Site Clearance
Levelling
What is included in Planning costs?
section 106
CIL
planning application
local planning policy
What is market standard for professional fees?
10-15%
what is market standard for contingency?
5%-10%
Why does contingency vary?
reflects risk of the project, for example if site didn’t have planning permission / movements in build cost
What are the three elements a developer might need finance for?
Site Purchase
Total Construction
Holding Costs - voids until disposal of scheme (rates s/c)
How is financing calculated for a site purchase?
straight line basis using compound interest
finance is spread equally over development
How do you calculate finance required for construction period
assume total construction costs over half of the time period using S curve
What is an S curve?
reflects when monies will be drawn down, assumes total costs over half time period reflected in S curve, beginning of the development costs will be lower as planning permission and design is undertaken, then peaks through construction and comes down nearer to completion.
How do you calculate finance for ongoing holding costs?
From completion to disposal, straight-line and compounded
What is developers profit?
the percentage of the GDV that developer requires as a return
if a project is more risky - higher return for taking on more risk.
What level on debt finance is assumed and why?
100% debt finance because we can’t assume clients equity because each borrower will borrow at different rates
What are the main two methods of funding?
Debt financing - loaning money from bank
Equity - own money used
What is the typical Loan to Value ratio (LTV)?
60:40
What are the different types of Loans?
senior debt - first level loan
mezzanine finance - additional finance (higher interest)
What is the Bank of England base rate?
5.25%
What is a swap rate?
Fixed rate with profit margin on top
What is the difference between a development appraisal and a residual appraisal?
development appraisal establishes viability
residential valuation to assess market value of site
What is the RICS VIP 12 Valuation of Development Land?
Provides a framework for a consistent approach to the valuation of development land
covers site inspection
- extent of site
- flood risk
- shape of site
- any matters that could increase costs such as poor access
- party wall / boundary issues
- variables that can influence site value
- market demand
- supply
- competing developments
- build costs
development programme assessment
- pre construction
- construction
- post construction
What variables can influence site value?
market demand
location
supply
competing developments
environmental factors
build costs
planning
timescales
What is affordable housing
local planning authority makes provisions to meet local demand and need for affordable housing
Why is affordable housing important?
Improves quality of life, better health, financial stability and population diversity
How is CIL calculated?
multiplying the new floor space that a development will be creating by the relevant CIL rate
What is a sensitivity analysis?
re-calculate the appraisal with different assumptions on inputs, for example an increase in build costs or a decrease in gross development value, and seeing what effect this has on the profit measures.
What are the different types of CIL?
Mayoral CIL - finance the Elizabeth line
Borough CIL -support local infrastructure
what are the key components of a residual appraisal?
Site preparation, planning, build costs, professional fees, contingency, developers profit, marketing fees, finance
What is the difference between MCIL and CIL?
MCIL is charges on top of CIL for the up keep of the Elizabeth Line.
what stages of the development process might the developer need finance for?
Purchase of the site, construction and holding of the site
What were the tariff rates for your residential development?
£50 sq m MCIL
£500 sq m CIL
When might mezzanine finance be used?
to fill the gap between a developer’s equity and senior debt.
For example, a senior debt lender is able to lend 70% of the cost of a project, but the developer may only want to put 10% of their own equity into the project. The remaining 20% can be provided by a mezzanine lender.
If all the build costs were at the start over the same time how would this affect finance?
finance would be higher because you would be paying more interest.
What are the different types of sensitivity analysis?
simple sensitivity - key variables (GDV, costs, finance)
scenario analysis - change scenarios, development content, timings, phasing.
What is yield on cost?
rental income divided by costs (build costs plus site costs) expressed as a percentage
Developers profit?
GDV less costs = profit
profit as a percentage of the profit.
will vary depending on risk / planning.
would a geared or ungeared IRR be higger?
geared as uses debt
what does straight line basis mean?
costs are evenly spread over time
