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Development Appraisals PB > Level 1 - 3 > Flashcards

Level 1 - 3 Flashcards

1
Q

Purpose of a development appraisal?

A

Assess the financial viability of a development scheme.

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2
Q

Why is a development appraisal used?

A
  1. Establish a residual site value.
  2. Assess profitability of a scheme
  3. Assess sensitivity to changing inputs.

BASED ON CLIENTS INPUTS

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3
Q

What is a residual site valuation?

A

Market value of a site based on market inputs at the time of the valuation

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4
Q

Limitations of Residual Valuation

A
  1. Importance of accurate inputs
  2. Sensitive to minor adjustments
  3. Cross check with comparable site.
  4. Assumed 100% debt finance
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5
Q

What is the methodology of a residual site valuation?

A
  1. GDV
  2. Site Preparation costs
  3. Planning costs (S106, CIL)
  4. Build costs
    5.Professional Fees (8-12%)
    6.Contingency (5-10% build costs)
    7.Markeing costs
  5. Disposal Fees
  6. Finance (100% debt)
    10.Developers Profit (15-20%)
    11.SENSITIVTY
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6
Q

How do you calculate the GDV?

A
  1. Market value of proposed scheme at todays date
  2. Use comparable method
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7
Q

What are the planning costs?

A
  1. Section 106 payments (Negotiable planning obligations)
  2. CIL (Fixed payment, local and mayoral)
  3. Other costs - Planning consultant fees, Planning application
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8
Q

What are the build costs?

A
  1. Cost to build the development. ON GIA
  2. Found using Build Cost Information Server (BCIS)
  3. Average prices page on BCIS
  4. Or use QS
  5. S curve used to show construction costs. Most money used in middle of development
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9
Q

What are professional fees?

A
  1. 10-15% of total construction costs.
  2. Architects, surveyors, engineers, contractors
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10
Q

what are the Marketing costs?

A

1-2% of GDV. Assume realistic marketing budget.

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11
Q

What are disposal fees?

A

Sales agent - 1.5%

Legal fees - 0.35%

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12
Q

How do you calculate the finance rate?

A

Assumes 100% debt finance.

LEARN

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13
Q

What is Developers Profit?

A
  1. 15-20% - dependant on risk
  2. Profit on cost or GDV
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14
Q

What is a sensitivity analysis?

A
  1. Helps make more informed decisions and manage risks more effectively.
  2. Important in volatile market
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15
Q

What RICS standard should you refer to for Residuals?

A

RICS Professional Standard - Valuation of Development Land (2019)

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16
Q

Talk to me about your Illford (L2) residual appraisal?

A

Client wanted to know the land value of a potential change of use scheme, office to resi

I found comparables to establish GDV

Then inputted costs provided by client

17
Q
A
18
Q

Barking Road Level 3

A
  1. Development appraisal for extant scheme (24 resi units) and proposed scheme (30 units)
  2. Established GDV
  3. Cost Plan provided
  4. Proposed scheme RLV only marginally higher.
  5. Planning risks and costs makes extant scheme better.
19
Q

Chadwick Street Level 3

A
  1. Development appraisal for old job centre
  2. Calculated GDV - Upper floors higher value due to better quality.
  3. three scenarios - PD Single. PD+1, PD+2
  4. Build costs using BCIS - top floors would be more expensive to build
  5. Finance 7%
  6. Advised the with two additional floors highest value. But planning risk due to building heights
20
Q

How do you get build costs from BCIS?

A

Development type, borough type and number of storeys

21
Q

What are the weaknesses of BCIS?

A
  • Not updated daily
  • Large range
22
Q

How is finance rate calculated?

A
  • Base rate + arrangement fees
23
Q

How is finance rate made up?

A

Weighted average of cost of equity and cost of debt

24
Q

How would your residual change if your scheme didn’t have planning?

A
  • Professional fees rise
  • Contingency rise
  • Profit rise
  • Time scales would be bigger
  • Finance would be more
  • No planning fees
25
Q

Define GDV?

A

Value of the proposed site on special assumption that the development is complete

Development Appraisals PB (2 decks)

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