Development Appraisals

Question 1

What are the acquisition fees?

Answer 1

SDLT
Legal Fees
Agency Fees

Typically around 2-4% total

Question 2

What is involved in site preparation?

Answer 2

Demolition, remediation works, landfill tax, site clearance, levelling and fencing.

These works need a contractors cost plan.

Question 3

What sort of planning costs might arise?

Answer 3

Section 106 payments under the Town and Country Planning Act 1990 - a legal agreement for planning obligations to gain planning consent
Community Infrastructure Levy (CIL) - charged by most local planning authorities
Section 278 payments for highway works
Planning application and planning consultant fees
Cost of any specialist reports (environmental assessment)

Question 4

What are the main sources of building costs?

Answer 4

1. Client information
2. BCIS Data
3. Spons Architects and Builders Price Book
4. QS estimate of quantities / cost plan
5. Building surveyor estimate

Question 5

What are the typical professional fees?

Answer 5

10-15% plus VAT of total construction costs (including architects, M&E consultants, project, managers, structural engineers etc.)
Architects are usually the largest proportion

Question 6

What are typical contingency costs?

Answer 6

5-10% of construction costs, depending on risk levels and likely movements in building costs.

Question 7

What are the THREE elements for Finance?

Answer 7

1. Site Purchase - (include purchaser’s costs) - compound interest straight line basis.
2. Total Construction and Associated Costs - based on S-curve taking half the costs over the length of the build programme
3. Holding Costs - to cover void until disposal of the scheme (empty rates, s/c and interest charges) - compound interest on a straight line basis

Question 8

What are the THREE forms of sensitivity analysis?

Answer 8

1. Simple sensitivity analysis of key variables - such as yield, GDV, build costs and finance rate
2. Scenario analysis - change of scenarios for the development content/timing/costs, such as phasing the scheme or modifying design
3. Monte Carlo Simulation - using probability theory, using software such as ‘Crystal Ball’

Question 9

What is the RICS Professional Standard regarding development appraisals?

Answer 9

RICS Professional Standard: Valuation of development property 2019

Question 10

What ways other than contingency can you reflect risk in a development appraisal?

Answer 10

Developers Profit - will require more profit if riskier project
Timelines - Will be lengthened if additional risks
Professional Fees - extended planning design & management costs
Finance Costs - Higher interest on debt

Question 11

What is the lending rate for development appraisals?

Answer 11

Development appraisals assume 100% debt finance.