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JU - APC > Development Appraisals (Submission) > Flashcards

Development Appraisals (Submission) Flashcards

1
Q

How do you determine the timescales associated with the 23 unit development in Westerfield, Ipswich?

A

Pre-construction
Construction
Sales

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2
Q

When would you use a development appraisal?

A

When I need to calculate the profit of a clients proposed development, or offer advice on a proposed development.

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3
Q

What are the differences between a development appraisal and a residual appraisal?

A

Development appraisal is used to assess the viability of a proposed development by using varying inputs

whereas a residual appraisal is for the assessment of MV using market inputs.

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4
Q

What is affordable housing?

A

It is a form of s106 payment under the Town and Country Planning Act 1990.

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5
Q

What are s106 Payments?

A

They are obligations such as the provision of affordable housing, infrastructure needs or public facilities to be able to gain planning permission.

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6
Q

How do you know how much affordable housing is necessary?

A

Local Planning Policy will set out the requirements in terms of % of total units.

In the form of social, intermediate and key worker housing.

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7
Q

What is CIL and what is its purpose?

A

Community Infrastructure Levy

Under the Localism Act (2011) - requirement to aim to ensure that overall purpose of the levy is to ensure that costs of providing infrastructure to support development of an area can be funded by owners or developers of land.

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8
Q

How is CIL calculated?

A

Check the charging rate (£/sqm) on the LPA website (if applicable). Not all LPA’s charge it.

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9
Q

What is the main difference between s106 and CIL?

A

s106 are site-specific obligations whereas CIL facilitates offsite/ community contributions. s106 is negotiable and CIL is not negotiable.

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10
Q

What did the local agent’s GDV look like for Moles Farm?

A

It was broadly similar but my GDV came in approximately £150,000 higher.

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11
Q

How did you account for the likely Asbestos removal costs?

A

I increased the contingency to 10% from the developer’s assumptions of 5.4% which I felt was reasonable because the potential ACM material was roof sheeting which although still costly is not as costly as asbestos located in the ground for instance.

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12
Q

What does BCIS stand for?

A

Building Cost Information Services

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13
Q

What is the basis of measurement for BCIS?

A

GIA

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14
Q

What was the BCIS sample pool for Moles Farm?

A

28

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15
Q

What are the downfalls of BCIS?

A

Time lag
Low sample sizes
Costs are site-specific
Not ‘all in’ build costs

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16
Q

What is not included in BCIS costings?

A

Contingencies
Professional fees
external works
VAT

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17
Q

Who prepared the costings for Moles Farm?

A

A local reputable firm

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18
Q

What would you expect as a new build premium?

A

I would determine from local agents but 10-15% would be reasonable. I would also consider the RICS Guidance Note on ‘Valuation of Individual New Build Dwellings’ (2019)

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19
Q

What is the hierarchy of comparable evidence?

A

In terms of the RICS Guidance Note ‘Comparable Evidence in Real Estate Valuation’ (2019) there are three sections;
A = Direct comparables
B = Wider comparables
C= Other market evidence

Determining the most relevant factors of comparable evidence in comparison to the subject property.
- location
- condition
- specification
- type of property
- size
- amenity space

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20
Q

How do you calculate the Residual Land Value?

A

GDV - (build costs & profit) = RLV

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21
Q

How do you determine the level of profit?

A

Usually 20% profit on cost.

It reflects the risk associated with the development and a market-facing input I would typically expect given the requirements of developers on similar dev. projects.

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22
Q

When would you increase contingency?

A

In speculative circumstances where the development is in the early stages of planning for instance.

or where there are higher risks associated.

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23
Q

What abnormal costs can occur in a development?

A

Ground contamination, piled foundations necessary, allowances for flooding.

24
Q

What is the likely level of finance costs in a development appraisal?

A

Typically, I apply 6.5% which includes the Bank of England’s base rate cost of borrowing and arrangement fees.

However, I would look to increase this due to the increase in the Bank of England’s base rate (2.25% - October) costs of borrowing seen in recent months.

25
Q

How may profit vary on a scheme of 100 units and a scheme of 1 unit?

A

Might expect higher profit given the higher associated risks.

26
Q

How did you decide your build rate for Moles Farm?

A

The borrower informed us that 2 months of pre-construction and 12 months of construction were reasonable. They did not have the need to sub-contract any of the works so there were able to ensure the availability of resources at the correct time.

27
Q

How did you decide upon the absorption rate for Moles Farm?

A

1-2 units per month = 6-month sales period.

I checked this with local agents and they believed demand would be strong.

28
Q

How did you calculate your figure for SDLT for Moles Farm?

A

I used the Stamp Duty Land Tax calculation on Argus Developer Software.

**Was this up to date with the Stamp Duty Relief introduced during COVID?

29
Q

Why did you use Argus Developer Software for your Moles Farm appraisal?

A

Because it is an industry standard which provides consistency across the market.It also reduces the margin of human error.

30
Q

What are the limitations of Argus Developer?

A

It bases the appraisal on the basis of 100% debt finance which is an unrealistic scenario.

31
Q

How will the rights of access likely be incorporated into the purchase of the land?

A

As an Easement for RoW, incorporated into the title deeds for perpetuity. It would identify the purposes of the RoW as being residential use.

32
Q

When is SDLT not applicable for development?

A

16 or more units = non-residential SDLT applies

33
Q

What did you advise your client at Westerfield?

A

I advised my client that a viability assessment could be undertaken to assess the planning obligations, expected to be met on-site and whether a payment in lieu could be robustly justified. This could also consider the Viability of the development in terms of the associated CIL contributions additionally.

As part of this, an independent chartered surveyor would be instructed which would provide a professional opinion on build costs.

34
Q

What is a financial viability assessment (FVA)?

A

Viability assessment is a process of assessing whether a site is financially viable, by looking at whether the value generated by a development is more than the cost of developing it. This includes looking at the key elements of gross development value, costs, land value, landowner premium, and developer return.

35
Q

How did you account for the limitations of BCIS within your appraisal for Westerfield?

A

I apply additional costs in association with:
- infrastructure (10% of build costs) due to the small nature of the site.
- plot costs (10% build cost)
- any abnormals such as £30,000 maintenance of open space (s106 contribution)
- disposal fees
- contingency at 5%

36
Q

What is the limitation of BCIS?

A

Outdated
Insufficient data
No all developers will be submitting their tenders
All developers include various costs at various stages and therefore may not be directly comparable.

37
Q

Why did your client in Westerfield seek pre-application planning advice?

A

To understand the problems they may face and to get a sense of what the council may want to see/ or not to see. It is cheaper than going straught in for full planning.

38
Q

What did you advise your client in Wickham Bishops and why?

A

I advised them that most value would be achieved with planning and thus we would market the site unconditionally once planning was returned succesfully.

If this was not the case then there were options to appeal the planning which my team in Savills would be happy to assist with.

39
Q

Did you account for planning risk when advising your client in Wickham Bishops?

A

Yes, I did inform them that my appraisal was based upon the site having been planned and if this was not successful the RLV does not stand. If the planning was not to be successful there was always an option to appeal.

Was the site allocated?

40
Q

In regards to the site in Wickham Bishops, how likely was planning to be granted? How did you reflect this risk in regard to the advice given to your client?

A
41
Q

What is the difference between a high-level appraisal and a detailed one?

A

A high level would involve many assumptions for instance for example on the scheme and costings of this (very theoretical). A detailed one would be you are modelling it of an agreed scheme and you have a better understanding as to potential costs and contributions for example. (more factual)

42
Q

Is it accurate enough to use an average sqft and how did you apply a £psf to this to reflect and real market outlook?

A

In this instance yes, as it was a high-level appraisal it was more accurate than assuming unit sizes for each unit for example.

43
Q

Why is it important to include a sensitivity analysis?

A

It is a very reflective way of indicating movements in the market and how this could have an impact on the appraisal.

44
Q

How would you usually determine the gross-to-net ratio for the developable area?

A

A rule of thumb is 65%

45
Q

What factors may affect the net developable area?

A

Topography, existing factors on site such as trees, structures, and existing infrastructure under the ground. Also planning policy. Such as s106 requirements for open space for example.

46
Q

Referring to the consultancy job in Roydon Hamlets, how was the average unit size of 1,250 sqft derived?

A

I looked at similarly located schemes with planning consent to assess the range of sizes and number of dwellings to determine a range and this seems a reasonable average to assume.

47
Q

Referring to the consultancy job in Roydon Hamlets, how was the density of 10 dwellings per net acre derived?

A

Market knowledge takes an average between what national house builders can achieve (say 14 units per acre) in comparison to SME housebuilders which would not be the same.

48
Q

Was the site in Harlow liable for CIL?

A

No, there is not a CIL charging schedule in place in Harlow Council.

49
Q

Did your advice for your client in Harlow have any other basis other than just monetary reasoning?

A

In this instance, there were looking to achieve the highest value. But I am aware if they are looking for a quick sale for example my advice might vary.

50
Q

How did you verify your assumptions for your feasibility study in Harlow?

A

local agents, colleagues, and market comparables/ experience and knowledge.

51
Q

What professionals are included within ‘professional fees’?

A

Architect
Quantity survyor
Site manager

52
Q

You mention the sensitivity of appraisals, can you tell me how slight changs in finance rates would affect the appraisal output?

A

Increase in finance rates leads to higher costs which can have a negative output on land value or profit (depending on what you set the output to look at.)

53
Q

What is CIL indexed to?

A

BCIS all-in TPI (Tender Price Index).

Not all councils index it for you therefore need to find the index on BCIS website. Councils will often state the value when initially implemented which can vary significantly.

Chelmsford Council give the updated value which is very useful!

54
Q

When is CIL exempt?

A
  • CIL is payable on Net Additional private space. (Property must have a Certification of Lawfulness and have been used as stated to not have CIL payable on the existing space).
  • Exempt if it meets the criteria for charity purposes.
  • Exempt for private residential use (self-builders or primary residence)
55
Q

For the site in Westerfield, was CIL also applicable?

A

Yes, East Suffolk Council has a charging schedule in place. The Property was situated in the Medium charging zone and had a rate of £116/sqm.

JU - APC (16 decks)

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