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VT APC 2 > Key Case Study Questions > Flashcards

Key Case Study Questions Flashcards

1
Q

When was the instruction given?

A

13th May

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2
Q

When did you provide advice to your client?

A

3rd July

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3
Q

How many units does the Project comprise?

A

599

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4
Q

How many BTR units does the Project comprise?

A

423

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5
Q

How many AH units does the Project comprise?

A

176

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6
Q

When will the Project SOS?

A

March 2026

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7
Q

Who did you engage with in Key Issue 1 to start with?

A

Residential Agents

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8
Q

What were the target tenants?

A

High-earning single persons and aspirational sharers / couples who work in finance, insurance, law and tech (likely in Canary Wharf)

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9
Q

Talk me through Key Issue 1 - Option 1?

A

No amenity / limited amenity

  • Fizzy East 16 (co-working)
  • Opportunity: Additional resi units and revenue
  • Risk: No differentiation
  • Agents advised that tenant and investor preference is for onsite amenity (ease of access / aid future exit deals)
  • Not meet objectives
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10
Q

Talk me through Key Issue 1 - Option 2?

A

Standard amenity

  • Riverstone Heights, Anchor’s Point, Millet Place, 8 Water Street, Nautilus
  • 24-hour concierge, lounge/co-working/gym
  • Opportunity: Convenience of onsite amenity for tenants
  • Risk: No risk as operational costs would not be too high
  • Met objectives as attractive and affordable
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11
Q

Talk me through Key Issue 1 - Option 3?

A

Premium amenity

  • Sailmakers, No. 4 Upper Riverside, Newfoundland, Phase 3 Royal Wharf, Phase 1 Coppermaker Square
  • Screening room, games room, bar, pool, studio, spa, play area
  • Opportunity: Attractive to tenant market if pay for additional amenities
  • Risks: Additional operational costs
  • Did not meet objective
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12
Q

What was the solution for Key Issue 1?

A

Option 2 - Standard Amenity (attractive and affordable)

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13
Q

What RICS Guidance did you refer to in Key Issue 2?

A

Comparable Evidence in Real Estate Valuation (1st Ed., 2019)

  • Comparable method
  • Hierarchy of Evidence
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14
Q

What can you tell me about the Comparable Evidence in Real Estate Valuation (1st Ed., 2019)?

A
  • Principles of comparable evidence
  • Sources of comparable evidence
  • Recording of comparable evidence
  • Recording comparable evidence
  • Analysis of comparable evidence
  • Dealing with a shortage of comparable evidence
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15
Q

Talk me through Key Issue 2 - Option 1?

A

Achieved rents within 2 miles of the Project (category A)

  • Royal Wharf: £34-41psqft (comparable location, but older, Project command higher)
  • Fizzy East 16: £37-52psqft (less comparable location, also older, Project command lower as not in Canning Town)
  • Insufficient to base off two sources
  • Consider in line with Option 2
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16
Q

Talk me through Key Issue 2 - Option 2?

A

Achieved and asking rents within 2 miles of the Project (category A)

  • Utilise achieved rents from Option 1, in addition to asking rents for Millet Place
  • Millet Place: £26-33 psqft (comparable location and specification, but older, Project commanded higher)
  • Nautilus and Phase 2B Gallions Quarter were discounted due to insufficient evidence to calculate the £psqft
  • Sufficient evidence by using all three sources
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17
Q

Talk me through Key Issue 2 - Option 3?

A

Expand search area and utilise achieved rents within 5 miles (category B)

  • In Canary Wharf: 8 Water Street, Newfoundland and Sailmakers
  • Bromley-by-Bow: Riverstone Heights
  • North Greenwich: No. 4 Upper Riverside
  • Stratford: Phase 1 Coppermaker Square
  • All discounted due to less comparable locations
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18
Q

ERV of studios?

A

£1,670
£40 psqft

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19
Q

ERV of 1B2P?

A

£1,975
£35psqft

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20
Q

ERV of 2B3P and 2B4P?

A

£2,457
£32 psqft

£2,675
£35 psqft

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21
Q

ERV of 3B5P and 3B6P?

A

£3,150
£33 psqft

£3,350
£32 psqft

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22
Q

What yield did you apply to the rents?

A

4.5% yield

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23
Q

What void periods did you apply to the rents?

A

2% voids

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24
Q

What purchaser’s costs did you apply to the rents?

A

1.8% purchaser’s costs

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25
Q

What inflation did you apply to the rents?

A

5% Regen Premium applied now

26.3% Escalation

UK inflation is 2.2%

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26
Q

What was the value of the BTR tenure?

A

£251m

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27
Q

What was the value of the AH tenure?

A

£66m

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28
Q

What was the value of the retail?

A

£1.7m

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29
Q

What was the value of the other revenue?

A

£9m

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30
Q

What was the overall GDV of the Project?

A

£327m

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31
Q

How does escalation work?

A

We calculate rents, apply regen premium, voids, yield, purchaser’s costs for the value

We then set the escalation date, which is the date we plan to sell the Project to an investor

We then apply 26% escalation to the value, which increases the value, and this is the value we sell the Project to the investor

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32
Q

Talk me through Key Issue 3 - Option 1?

A

Increase massing

  • Opportunities: Improve GDV by increasing heights
  • Risks: Breach Section 171A of Town and Country Planning Act (1990) (failing to comply with planning condition or limit)
  • Planning and Compliance risk
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33
Q

Talk me through Key Issue 3 - Option 2?

A

Switch tenure

  • Opportunity: Increase GDV
  • Risk: Breaches the MA
  • Compliance risk
  1. The MA stipulates that 721 AH have to be delivered in Phase 1 (the deal is fixed and not indexed to construction cost inflation)
  2. I reviewed the BCIS building forecast to understand construction cost inflation projections and it is set to increase by 15% over the next 5 years. Deliver affordable units first while inflation is lower and private units later then inflation is higher, to avoid future plots becoming unviable.
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34
Q

Talk me through Key Issue 3 - Option 3?

A

Value engineering

Engaged with cost planner to review cost plan

  • Opportunity:
  • Risk:
  • No planning or compliance risk

Switches:
- Aluminium to composite windows
- Bespoke to standardised balconies
- Cheaper façade

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35
Q

What were the construction costs?

A

£218m

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36
Q

What were the market assumptions for other costs, such as professional fees?

A

£16m

Usually 10-20% for professional fees
These are lower as a lot of the consultants already appointed on previous design and this was an extension to their scope

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37
Q

What is the MOC viability threshold?

A

14%

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38
Q

What was the MOC and what did it increase to?

A

Increased to 14.19%

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39
Q

What do you mean by compliance?

A

Legislative considerations

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40
Q

What is included in the S171a of The Town and Country Planning Act (1990)?

A

Carrying out development without the required planning permission; or

(b)failing to comply with any condition or limitation subject to which planning permission has been granted,

constitutes a breach of planning control

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41
Q

Revenue:

  • BTR
  • AH (includes grant)
  • Retail
  • Other Revenue (money you earn)
A
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42
Q

Costs:

  • Construction
  • Professional fees
  • Marketing and selling
  • Other Dev Costs (rent free, capital incentives)
  • DMPM fees
  • Dev Contingency
  • Land (SDLT at 5%)
  • Planning fees (CIL / S106)
A
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43
Q

How did you act in accordance with the RICS Rules of Conduct?

A

Rule 3 - Seeking advice for areas outside my expertise (like agents advice in Key Issue 2, Cost Planner in Key Issue 3, Planning Consultants in Key Issue 3)

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44
Q

What legislation did you adhere to?

A

The Town and Country Planning Act (1990)

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45
Q

What RICS guidance did you adhere to?

A
  • Valuation of Development Property (1st Ed., 2019)
  • Comparable Evidence in Real Estate Valuation (1st Ed., 2019)
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46
Q

Can you tell me about the RICS Professional Standard: Valuation of Development Property (1st Ed., 2019)?

A
  • Supplements International Valuation Standard (IVS) 410 ‘Development Property’
  • Stipulates that when valuing a development property, marriage value or hope value should be stated
  • Common basis of value is market value, subject to assumptions or special assumptions, in which case there is an assumption of optimum development
  • If using the comparable approach, it should be crossed referenced with the residual approach
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47
Q

Can you tell me about RICS Guidance Note: Comparable Evidence in Real Estate Valuation (1st Ed., 2019)?

A
  • Includes guidance on sources of comparable evidence (market evidence, indices)
  • Includes guidance on the Hierarchy of Evidence
  • Also mentions data protection and confidentiality (where sources cannot be confirmed, valuers may need to obtain permission, especially if the report will be published)
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48
Q

Why should you have used qualitative feedback?

A

Internal BTR expert on which amenities are most utilised

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49
Q

Why should you have used sensitivity analysis?

A

Consider other development costs

Did not use as greatest savings in construction costs and time constraints

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50
Q

Can you talk me through the Aluminium to composite windows?

A
  • Pure aluminium is more expensive than composite
  • Composite is a mix of aluminium and plastic so it’s cheaper
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51
Q

Can you talk me through the bespoke to standardised balconies?

A
  • Rather than having multiple types of balconies, you can achieve economies of scale by procuring one type
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52
Q

Can you talk me through the cheaper facade?

A
  • It is a brick façade
  • We opted to use a cheaper brick, of a similar colour
53
Q

Can you talk me through the additional operational cost Option 3 would have had over Option 1 and 2?

A

Option 3 would likely include a pool, exercise studios, children’s play area etc.

Includes opex like:
- Facilities management
- Onsite staffing
- Maintenance of a pool / exercise studio equipment / cinema

54
Q

What value was applied to the affordable and retail elements of the scheme?

A

AH - £66m
Retail - £1.7m

55
Q

When else might you use the comparable method of valuation?

A

Used where there is a good body of recent, reliable comparable rental, yield or sales evidence.

56
Q

What date was the RICS Guidance on Comparable Evidence in Real Estate Valuation issued?

A

1st Edition was reissued in April 2023 (changed from a Professional Statement to a Professional Standard)

57
Q

What is the Hierarchy of Evidence?

A

Used to give weighting to more relevant comparable evidence. It is split into three categories.

58
Q

Please can you clarify when each comparable was completed?

A

Royal Wharf - 2020
Fizzy East 16 - 2022 (I said 2020 as typo)
Millet Place - 2020

59
Q

What yield did you apply to the BTR?

A

4.5% (KF report):

60
Q

What are current yields in BTR in zone 3/4?

A

KF report (Oct 2024):

4.75% - 5% (funding yield)
4.4% - 4.5% (stabilised yield)

61
Q

What RICS Guidance should you follow?

A

RICS Professional Standard: Valuation of Development Property (2019)

62
Q

How did you calculate Professional Fees?

A

Typically between 10-15% plus VAT of total Construction Costs for architects, M&E consultants, project managers, structural engineers

63
Q

What other costs were there in addition to construction costs and professional fees?

A
  • Construction costs
  • Professional fees
  • Marketing and selling costs
  • Other development costs
  • DMPM fees
  • Development contingency
  • Land
63
Q

How do you calculate marketing and selling costs?

A

Sales - 1-2% GDV (RICS)

64
Q

What are included in other development costs?

A

Rent frees / capital incentives

65
Q

How do you calculate DMPM fees?

A
66
Q

How do you calculate contingency?

A

Typically 5-10% of Construction Cost

67
Q

How do you calculate land?

A

Land seems cheap because it’s the fee we pay the GLA for it
Includes SDLT at 5%

68
Q

How is MOC calculated?

A

Profit / Total Cost

69
Q

How would an increase in massing improve the MOC?

A

By adding additional resi units you can improve GDV and increase profit, as long as costs are kept down you can improve the MOC

70
Q

What development risk could increase by switching tenure?

A
71
Q

MOC of 14.19% is very close to the threshold, did you run any other appraisals to test the viability?

A

Threshold is 14%

I recently ran another appraisal with revised construction costs for the end of stage 2

72
Q

How much cost saving were made for the VE?

A
  • Composite windows - 1.8m
  • Facade treatment - £600,500
  • Balconies - £277,000

= £2,677,500

73
Q

How would you run a sensitivity analysis for other development costs?

A
  • Review of professional fees for next stage for example
  • Review marketing budget
  • Review DMPM fees for next stage (are there things in scope in this stage that weren’t necessary and could take out of next stage)
74
Q

What are sitewide costs?

A
  • Public realm (non-plot)
  • Infrastructure
  • Dock infill

(Bridge is by HE infrastructure loan)

75
Q

If you had been completing the work for external purposes, what would you have done as part of a conflict check?

A

Undertaken a database check

76
Q

If you had been completing the work for external purposes, what would you have put in terms of engagement?

A
  • Client’s agreement to fee basis
  • Payment of expenses (and how calculated)
  • Complaint’s handling procedure
77
Q

I note that you did have to undertake a conflict of interest check if that was required, how would you have done it?

A
78
Q

Can you talk me through the rental impact of amenity levels of your different options?

A
79
Q

Why does onsite amenity aid future exit deals for investors?

A
80
Q

You mentioned increased operating cost of option 3, what was additional operating cost over option 1 and 2?

A
81
Q

What yield did you apply to calculate GDV?

A
82
Q

What void periods did you apply?

A
83
Q

What was the MOC before applying any of the options?

A
84
Q

What other options could you have considered to improve the MOC?

A
85
Q

What was the cost saving of the value engineering exercise?

A
86
Q

In your critical analysis, what two options did you set out? What would you have done differently?

A
87
Q

How did you conclude that no amenity would not be attractive to tenants?

A
88
Q

How did you conclude that a premium amenity offer would not be attractive to tenants and investors?

A
89
Q

Is option 2 therefore the option because the others aren’t a good idea?

A
90
Q

Where you referenced that 2 comparable evidence wasn’t sufficient enough, was this view informed by any guidance or advice?

A
91
Q

What is the red book?

A
92
Q

Was this a valuation?

A
93
Q

If you were to be successful in your RICS application, would you be qualified to provide valuations?

A
94
Q

How did you assess that option 3 VE had no risks? (Bring this forward in presentation too)

A
95
Q

What is a running sheet?

A
96
Q

How is the project currently progressing?

A
97
Q

Why was the BTR the chosen tenure type?

A
98
Q

What was the affordable % across the MP and the plot? Why was it that amount?

A
99
Q

Why did you use the comparable method of valuation to value the BTR?

A
100
Q

You mention the affordable tenure has already been valued, how did they do this?

A
101
Q

What are some of the high level principles of the RICS Guidance on Comparable Evidence in Real Estate Valuation (2019)?

A
102
Q

You stated that you applied an appropriate yield as part of your BTR valuation, how did you come about this?

A
103
Q

Why does your client use MOC

A
104
Q

What are the penalties of breaching the T&C Planning Act?

A
105
Q

What are Starwood Capital?

A

Private Equity company investing in companies that are not publicly traded (like JV into TSP). Starwood act as the private equity.

106
Q

What is Plot 78 comprised of?

A

4 finger blocks
599 units
- 423 BTR
- 17 affordable
SoS in March 2026

107
Q

What is Silvertown comprised of?

A

27 hectares / 66 acres
- 700,000 sqm resi
- 80,000 sqm office
- 14,000 leisure
- 5,500 cultural
- 6,500 retail

108
Q

Who are the GLA?

A
  • Govern London through Mayor and London Assembly
  • Mayor is Sadiq Khan (Labour)
  • Priorities of GLA are AH, affordable transport, air pollution, arts & culture, economy, safety & security, diverse communities coming together
  • GLA Land and Property own
  • Act as a Dev / Investor so go into JV to unlock development and AH
  • Own 635 hectares
  • Tom Copley is Deputy Mayor
  • Rokhsana Fiaz is Mayor of LBN
109
Q

Who would a target investor for this plot be?

A
  • Living by Lendlease
  • Quintain
  • Grainger
  • L&G
  • Greystar

There is 30% less BTR in the market than in 2018/19, but the demand is higher (24 days typically to let, quicker than pre-pandemic)

110
Q

What do you mean by exit deal?

A
  • Amenity shows brand, whether it be fitness / convenience / wellness
  • Operational costs like gym equipment maintenance / pool are expensive / repairs / running costs / promotional offers / launch events / marketing
111
Q

What is guidance for comparable evidence?

A

RICS Guidance on Comparable Evidence in Real Estate Valuation (1st Edition, 2019)

112
Q

What is Category A evidence?

A

Direct Comparables

  • Identical transactions for which full and accurate info is available / offer available / asking prices
113
Q

What is Category B evidence?

A

General Market Data

  • Guidance rather than direct indication / databases / indices / historic evidence / demand & supply
114
Q

What is Category C evidence?

A

Other Sources

  • Transactions from other types / locations / other background data (interest rates, stock market returns cam indicate yields)
115
Q

What are Obstacle Limitation Surfaces?

A
  • Consented building heights under extant permission
  • 19.9 AOD (above ordnance datum)
  • If higher than this, breaches 171A Town & Country Planning Act (1990)
116
Q

Why couldn’t you switch tenure?

A

Master Agreement states that 721 (10% buffer) must be delivered in Phase 1.

Have to deliver AH in Phase 1, it’s cheaper to do it now while building costs are lower than they are predicted to be in years to come.

The deal including grant for each plot, unit and size is determined (£200-£400k).

117
Q

What is BCIS?

A

Building Cost Information Service

  • Building costs predicted to increase by 15% in next 5 years
  • Tender prices also predicted to increase by 19% (copper increasing due to its demand in data centres)
118
Q

What value engineering did you undertake?

A
  • Aluminium to composite windows
  • Bespoke to standardised balconies
  • Cheaper façade treatment
119
Q

How would you improved?

A
  • I would have undertaken qualitative feedback (higher level of service in line with Rule 2 of Conduct)
  • Sensitivity analysis (looked at other development costs)
120
Q

How high has cost inflation been?

A

15% over next 5 years

121
Q

On the ERV of the BTR, what regeneration premium did you apply?

A

5%

122
Q

What is regeneration premium?

A

Increase in property values in areas undergoing regeneration (cumulative increase as development is built out, usually a lag and then influx of critical mass that drives placemaking kicker)

123
Q

What void did you apply?

A

2% void

124
Q

What yield did you apply?

A

4.5%

125
Q

What purchaser’s costs did you apply?

A

1.8% (buyer pays for legal fees, surveyor fees, VAT, agent’s fees) then add SDLT. 1.8% is UK standard.

126
Q

What was the value of the affordable?

A

NB: Not indexed and includes grant funding in my DA.

127
Q

What was the value of the retail?

A
  • Gym: £10psqft, 6.5% yield
  • Retail: £10psqft, 6.5% yield

VT APC 2 (13 decks)

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