What is the difference between a development appraisal and a residual valuation?
- DA = calculation to establish the value, viability and profitability of a proposed development based upon the clients inputs.
- Residual valuation = specific valuation of a property holding to find the market value of the site based on market inputs.
What are the key inputs in development appraisals?
MR/MV for GDV, finance, construction costs, professional fees, timeline, POC/Land costs.
What is a development appraisal?
DA = calculation to establish the value, viability and profitability of a proposed development based upon the clients inputs.
What are development appraisals sensitive to?
Sensitive to the main inputs.
How do you de-risk and reduce sensitivity in development appraisals?
De-risk by applying a larger contingency or higher POC, pre-lets, forward sales etc.
What is the importance of sensitivity analysis?
Given the sensitivity of appraisals it’s important to know how deviations in the inputs (which are likely) will impact profitability, and therefore the risk you are taking on.
What types of sensitivity analysis are there?
- Simple Sensitivity analysis – key variables. 2. Scenario Analysis – change scenarios for development e.g. timings etc. 3. Monte Carlo simulation – using profitability theory e.g. using crystal ball software.
What are the limitations of Argus Dev?
Complex and you can’t always see exactly where inputs are pulling through. If clients don’t know, it may be hard for them to understand.
What are the benefits and limitations of Excel?
Excel – can see where pulling through and make more bespoke. But very complicated to set up model and influence human error.
What CPD have you undertaken?
Various in house development days with senior members of the team, webinars on development based activities, argus developer training.
What is a profit erosion period?
Profit erosion period = term relating to the length of time it will take for the development profit to be eroded by holding charges following the completion of the scheme.
What is an overage?
Overage = arrangement made for the sharing of any extra receipts received over and above the profits originally expected as agreed in a pre-agreed formula.
