Development appraisals - lvl 2 Flashcards
Tell me about a development appraisal you have carried out.
I carried out a development appraisal on York Row, Hackney.
I assessed profitability on a site which was to be redeveloped into industrial space. I accounted for 5 upward only rent reviews and break options after 7 years. I found comparables to analysed them to find capital value. I was provided with building costs and deducted this to determine the development value. I reported on IRR and profit to my client.
Tell me about a sensitivity analysis you have carried out.
I carried out a sensitivity analysis on York Row, Hackney.
I was asked to vary lease lengths at 15, 20 and 25 years. I assumed that there were 5 yearly rent reviews and the 7 year break options. The rents were to increase every year at the CPI inflation rate, and increased at review and after broken at the void period. I reported the three different scenarios to my client on IRR and profit.
Tell me about where you source information and data for development appraisals.
I source data by physically browsing the local area for similar properties, from agents and online.
York Row, Hackney - can you give some guidance on why you chose those lease lengths.
My client instructed to produce the development appraisal for these lease lengths to see how the profitability of the project would change according different length leases.
York Row, Hackney - why did you include break clauses?
I advised them that 15, 20 and 25 year leases are now outdated and the tenant would typically have an option to exit the lease agreement after a shorter timeframe. Further to my recommendation they adopted break clauses every 7 years.
York Row, Hackney - tell me about the voids and rent free terms you incorporated
I adopted 3 month rent free periods for new leases and 6 month void periods after a break.
York Row, Hackney - where did you take yields form?
I used auction sites and spoke to local surveyors to determine the yield.
York Row, Hackney - was the project viable?
At my last stage of involvement the client was still obtaining further advice from the local authority who instructed them on what variables to alter to make the project viable.
York Row, Hackney - tell me about the risks associated with this development
The prospects for rental and capital growth, demand for use and vacancy were some risks.
York Row, Hackney - could you advise the client to develop and dispose.
I was not instructed on this. The client was working with the local authority and I was instructed to determine viability on profitability of repurposing the space of the site.
Frampton, Hackney - was this hypothetical or did the matter proceed?
The project was not viable and the client was obtaining further advice from the local authority who instructed them on what to alter to make the project viable.
Frampton, Hackney - was planning permission granted?
At my last stage of involvement the client was still obtaining further advice from the local authority who instructed them on what variables to alter to make the project viable.
Frampton, Hackney - did you gather costs for redevelopment, if so where from?
The client provided myself with a full breakdown of costs retrieved from their architect, surveyors or engineers which I computed in the development appraisal.
Frampton, Hackney - did the client suggest why they wanted to change from residential to industrial?
No. I was instructed on the change of use from residential to industrial.
Frampton, Hackney - did you offer any advice before accepting the instruction?
I advised them that they should attempt to go ahead with the development as soon as possible because of worsening conditions relating to the prospects for rental and capital growth.
