Development Appraisals

Question 1

TMW - What was the feasibility study and what were the two options?

Answer 1

The feasibility study produced a masterplan for the first phase of 500 homes homes. The tenure split was the following:
- 65% OMS
- 35% affordable

The two Options presented were:
- DLR Extension from Gallions Reach across the river to Thamesmead
- Extension of the Rapid Bus Link connecting Thamesmead with Abbey Wood & Woolwich.

Question 2

TMW - What is an Options Appraisal

Answer 2

Options appraisal allows a comparison of the different options for the project.

Enabled my client to understand the broad pros and cons of the available options so that a preferred option can be selected.

Question 3

TMW - How did you establish GDV

Answer 3

I consulted with local property agents to understand the baseline revenues for each tenure and both transport options.

OMS = £565 psf
Affordable Housing = £300 psf for Shared Ownership & £162psf for AR

I established that the DLR would gain a 10% escalation in values should the DLR be committed in comparison with the bus station

Question 4

TMW - What were the development costs

Answer 4

1. Construction Cost - blended £280 psf for the build costs. This includes contractor prelims & OH&P. Commissioned a quantity surveyor to provide high level cost benchmarks.
2. Sitewide Costs - £72m following advice from our infrastructure consultant who provided a desk top review. This was our land input, as is the value to get an enabled site ready for development.
3. Professional Fees - 10.25% of the construction cost following advice from my QS and benchmarking against my Client’s other projects.
4. Letting, Disposal & Marketing - 1% for OMS and 1.5% for BtR, 2.5% marketing
5. Planning Costs = CIL. Mayoral CIL = £25 / unit. Borough CIL = £40 / unit
6. Contingency = 7.5%
7. No Development Finance as assumption at the time was the development to be funded by the Joint Venture between my client and their partner.

Question 5

TMW - why did you undertake a sensitivity analysis

Answer 5

To highlight the impact of small changes to the build cost and sales revenues to my client’s profit margin

Question 6

TMW - What was your advice

Answer 6

I advised my client that MoC would be considerably increased if Rail Infrastructure would be introduced instead of just a bus system due to the large increase in GDV compared to stable construction costs across both options.

I did highlight however that the development programme would be much extended with rail infrastructure.

Question 7

TMW - What is the current status of the DLR extension

Answer 7

TfL have just closed a round of public consultation which presented the option to extend the DLR. Following this they will use the information to decide whether or not to submit the business case to the government for its extension.

Question 8

SKPT - What was your instruction

Answer 8

Complete an appraisal of a residential opportunity in Stockport and provide my opinion on Affordable Housing provision.

The residential opportunity was a large residential masterplan, and I based my appraisal on a feasibility study completed by a masterplan architect. There were 433 homes across the four seperate blocks (ranging in stories from 5 - 16), including al OMS.

0% was the starting level of affordable housing as reviewing a previously submitted viability report for a nearby scheme (Weir Mill) it had highlighted only viable with 0% affordable housing.

Goal for Stockport in town centre was 15%.

Question 9

SKPT - How did you establish GDV?

Answer 9

I analysed comparable evidence for the local area firstly through reviewing Rightmove for both sale and rental values. Due to the lack of comparable evidence in Stockport I had to expand my view to other Manchester satellite areas, such as Salford & Media City. As these areas were more established than Stockport, I adjusted their values accordingly. I confirmed with local agents to verify my assumptions.

OMS = £300 psf
Affordable Housing if it were to be included in the appraisal was assumed to be sold to a Registered Provider at 40 - 60% of OMS values. Depending on the tenure type.

Question 10

SKPT - What were the development costs

Answer 10

1. Construction Cost - £260 psf, from my quantity surveyor who I commissioned to produce a high level cost plan for the development
2. Professional Fees - 8.5%. This is lower than the average fees which are normally 10 - 15%, however following client information, I based the professional fees on my client’s recent projects which had just completed and had professional fees of 8% - 9%
3. S&M - 2.5 % of total revenues. Again following previous schemes which equalled 2 03%.
4. Contingency = 5% of total costs
5. Planning Costs. No CIL in Stockport. So looked
6. Land Costs = £630psf based on the site area. This was also using client information on previous projects, using the values required to remediate the site and enable it ready for development.
7. No Development finance. As proposed assumption at the time was the development to be funded either through my client’s balance sheet, or with a joint venture.

Question 11

SKPT - What was my advice

Answer 11

When completing the development appraisal at 0% affordable housing, the appraisal did not reach client’s required margin.

I advised my client that this was due to the rising construction costs (BCIS ‘All Work’ increased by 10.4%) in the current market conditions against the current revenue positions which had not risen enough to provide a viable scheme.

If my client were to pursue this opportunity, I advised that a housing grant should be sort to improve my client’s profitability and also achieve its affordable housing provision.

Question 12

SKPT - What are some potential housing grants that could be applied for?

Answer 12

• Homes England Affordable Housing Programme
• Homes England Housing Infrastructure Fund which could assist with some of the land costs. Homes England had recently provided a grant to the nearby Weir Mill Scheme (Capital & Centric)

Question 13

What is affordable housing?

Answer 13

In the NPPF defines affordable housing as:

‘Affordable housing: Social rented (50%), affordable rented (80%) and intermediate housing, provided to eligible households whose needs are not met by the market.

Question 14

Talk me through Development Appraisal in Elephant & Castle?

Answer 14

1. Asked to establish viability of a residential development under two scenarios. One with higher bathroom spec (but higher construction costs), one with lower quality spec and lower construction costs.
2. Liaised with sales team to understand market appetite for better spec. Who stated no impact on revenue potential.
3. Saving on lower spec equalled c. £600 per unit, or £157K.
4. Therefore profit margin improved with lower spec
5. Presented findings highlighting adjusting brassware in bathroom to lower spec.

Question 15

Talk me through Development Appraisal in Stratford?

Answer 15

1. Instructed to understand viability of a development project with two separate structural solutions for an office building in Stratford
2. Option 1 was a Hybrid (steel frame and timber slabs), Option 2 was a reinforced concrete frame
3. Understood costs with quantity surveyor. Understood rental values for each option, and the capitalisation rates.
4. Development appraisal revealed timber option had a lower MoC due to an increase in cost of £5m, and increase rental levels not offset this.
5. However embodied carbon would be much lower for Option1

Question 16

Some limitations to working with timber?

Answer 16

• If exposed for too long, Kings X, water can get in and ruin timber. Need waterproofing.
• Higher vibrations - so if trying to have high tech lab space
• Found on this project that programme is extended, as due to waterproofing requirements have to go up by 2 floors at a time then encapsulate instead of doing whole building
• ## Insurance industry not as up to speed.

Question 17

What is current construction cost rate?

Answer 17

Building materials prices decrease across the board. According to latest figures from Department for Business and Trade published that Construction Materials prices for All Work fell by 1.9% in 12 months to Feb 2024.

Question 18

What RICS Standard can be followed for Development Appraisals?

Answer 18

RICS Professional Standard, Valuation of Development Property 2019

Question 19

What are some positives & negatives to work with BCIS?

Answer 19

Negative - based public sector tenders and so spec might be lower. Can’t cover exceptional outlying costs.
Positive - public source of actual build cost tenders. Real life info.

Question 20

Affordable Housing requirement in Stockport?

Answer 20

Pushing for 25%, but stated that anything in the centre of town, look for 15% but can be negotiated

Question 21

What is embodied carbon?

Answer 21

Embodied carbon:

• Carbon dioxide emissions
• Associated with materials and construction processes
• Throughout the whole lifecycle of a building

Question 22

Limitations of a development appraisal?

Answer 22

Very sensitive to changes
Needs very accurate info
Not as good for phased projects

Question 23

What is IRR?

Answer 23

Internal Rate of Return

Metric used to estimate profitability of potential investments over time

IRR as the rate of growth that an investment is expected to generate annually

IRR is the discount rate that makes NPV of all cash flows zero in a DCF

Question 24

What was the Construction Cost inflation midway through 2022?

Answer 24

General Building Cost Index peaked at 14.6% annual inflation in the second quarter, while the BCIS Materials Cost Index reached 23.5% growth at the same time

Question 25

What prime rents in the city?

Answer 25

£75spf

Question 26

What are prime rents in West End?

Answer 26

£140psf