What are the differences between a development appraisal and a residual valuation?
A development appraisal is a tool to financially assess a development scheme
One can be used to assess a residual site value
Can also be used to assess the profitability of a proposed scheme and it’s sensitivity to changing inputs, or assessing the
viability of different uses, rents, yields or financial contributions, such as s.106/CiL
What is a residual valuation?
A specific valuation of a property holding – site value – at one moment in time at the valuation date for a particular purpose
How do you calculate a residual valuation?
SITE VALUE = GROSS DEVELOPMENT VALUE – TOTAL DEVELOPMENT COST – PROFIT
What is a development appraisal?
A calculation/series of calculations to establish the viability/profitability of a proposed development
It assumes a site value and DOESN’T always provide a Market Value
What is the simple calculation of a development appraisal?
PROFIT =GROSS DEVELOPMENT VALUE – TOTAL DEVELOPMENT COST – SITE VALUE
Are residual valuations and development appraisals Red Book compliant valuations?
Both forms CAN be used as a Red Book valuation – Red Book exemptions relate to the purpose NOT the methodology
All inputs are taken at the date of valuation
It is a growth IMPLICIT form of valuation
How would you calculate the Gross Development Value (GDV)?
- Market Value of completed proposed development at today’s date/valuation date
- Use plans if needed and measure on CAD (take measurements if you can)
- Valued at current date assuming present values and market conditions
- Comparable method of valuation used to determine rents and yields
- All Risk Yield used
- A rent free/incentive period and marketing void can be assumed if appropriate
- Purchaser’s costs are usually deducted for commercial property valuations
What are included in total development costs?
Site preparation, planning costs, building costs, professional fees, contingency, marketing costs and fees, developer’s profit, finance
What is a section 75 agreement?
Legally binding contract between a landowner and the local planning authority to mitigate the impact of a new development. Often includes a contribution towards the infrastructure surrounding the development site.
What are the sources of information on build costs?
client information, BCIS, building surveyor estimate, quantity surveyor estimate
What are build costs for an office currently?
£2000-2500 per sq m
£185- £240 per sq ft
At what three stages could a developer require finance?
site purchase (includes purchaser’s costs, total construction costs, holding costs
How do calculate finance over the construction period?
Using an ‘S’ curve - Principle is that as the payment of construction costs adopts the profile of ‘s’ shaped curve over length of
development project, the usual assumption is to HALVE the interest that is borrowed for all of build period
- Purpose of ‘s’ curve is to reflect more accurately the incidence of costs when monies are drawn down
How would you calculate the finance for a holding period?
Done on a straight line basis using compound interest
What are the 2 main methods of funding?
Debt and equity
What is overage/claw back?
Costs incurred over and above the the profits originally expected - these are split on a pre-arranged basis
What are the 3 forms of sensitivity analysis?
Simple - e.g. yield, costs, finance
Scenario - changing the scenario of a development scheme
Monte Carlo - using probability software such as Crystal Ball
What is the RICS guidance surrounding the valuation of development land?
RICS Valuation Information Paper No 12 (2008) – The Valuation of Development Land
What does RICS Valuation Information Paper No 12 (2008) – The Valuation of Development Land cover?
Assessing development potential, assessing site value, valuation by the residual method, valuation by the comparable method
What are the three types of development land?
Green field, brown field, or a combination of both
what is the current UK base rate?
4%
