APC - BK > Development Appraisals > Flashcards

Development Appraisals Flashcards

(46 cards)

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1
Q

Difference between a Dev App vs Residual Appraisal?

A

Development Appraisals: Establish the Viability / Profitability of a development from a known/assumed land value

Residual Valuations: Valuation to determine market value of a piece of land – reflect market evidence – one moment in time, at valuation date.

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2
Q

Dev app vs Residual App: How may the inputs vary?

A

Dev App:
- Inputs are provided by the client

Residual App:
- Inputs can be market estimates
- Completed on a certain date with some examples.

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2
Q
A
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3
Q

What is the professional Standard for Development Appraisals?

A

RICS PS: Valuation of Development Property, 2019

Supplement to IVS Development Property:

Provides a detailed overview of development property vals:
- DCF is best use if complex
- Market Value - Common basis of value
- Special assumptions / assumptions specified in report

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4
Q

How does a Development Appraisal differ from a Redbook valuation?

A
  • Red Book Val needs to be carried out by registered valuer
  • Red Book Val provides the client with formal and structured valuation, this is merely a cost estimation
  • you can get instructed to conduct a property Red Book val if need be.
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5
Q

What is GDV and what would you include?

A

Gross Development Value
* Assessing MV of completed proposed Development (today)
* Comparative method to determine rent and yield
* All risks yield used
* Allowance for lease terms – void, lease lengths and rent-free

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6
Q

What is TDC and what does it include?

A
  • Construction Costs + Contingency (5-10%)
  • Planning Costs – S.106, CIL, MCIL, S.278 Highways, Planning consultant
  • Professional Fees – 10% (Architect c. 4%, QS, Structural engineer c.1.5%) – VAT paid on all professional fees
  • Letting and Marketing Costs
  • Finance
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7
Q

What planning Requirements are there for Development Appraisals?

A
  • S.106: requirement where Developers must provide community benefits or payments to mitigate impact of development on local infrastructure and services.
  • CIL: Standard charge psf that LPA’s levy on new developments to fund regional infrastructure
  • MCIL: Additional psf on top of CIL for London boroughs
  • S.278 highways Agreement: legal agreement allowing developers to carry out / fund highway improvements and alterations to accommodate development traffic impact.
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8
Q

What developers profit would you assume?

A

It’s typically 10-20% depending on the risk of the project

Residual Valuation: Market Assumption
Development Appraisal: Client Targeted Rate

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9
Q

You mentioned various costs, how were your construction costs inputted?

Why is this?

A

During the construction phase I used an S-Curve

  • When you start the construction phase you may have ground works etc,
  • then foundations which incur more costs,
  • then constructing the actual building,
  • and then they start winding down towards the end
  1. Site Purchase: Straight Line Basis
  2. Construction Period: S-Curve
  3. PC over Letting Period: Straight Line Basis
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10
Q

What rate of finance would you use?

A

When looking at developers profit, you would use 100% debt finance

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11
Q

What is a typical interest rate?

A
  1. SONIA Rate (Sterling Overnight Index Average) + Margin
  2. Base Rate (4%) + Premium
  3. Provided by the client at which they borrow money for

Estimate: 8% - 10%

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12
Q

What is the current SONIA rate?

A

3.86% - Sep 2025

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13
Q

What are the two types of finance you can source to develop?

A
  1. Debt Finance
  2. Equity Finance
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14
Q

What are the different types of Debt?

A
  • Senior Debt - first level of borrowing (50-60%)
  • Mezzanine and Secondary Debt – additional funding
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15
Q

What factors affect the Viability of a development?

A
  • Tenure
  • Uses and mix of uses - local plan allocation / restrictive covenants
  • Timescales
  • Overages
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16
Q

What is a Restrictive Covenant?

A

A legally binding clause in a property’s title deed that limits how the land can be used

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17
Q

What is an Overage?

A

Arrangement for sharing upside of a development - pre agreed formula

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18
Q

What is Profit Erosion?

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A

The length of time it takes for development profit to be eroded - scheme gets to loss making

19
Q

What is a sensitivity analysis

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A

Method used to determine how different values of a variable affects another variable

20
Q

What are the 3 types of sensitivity analysis?

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A
  1. Simple Sensitivity (changing input)
  2. Scenario (changing factor influencing dev e.g. 1+ building / planning)
  3. Monte Carlo
21
Q

What was the time line of you’re developments?

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A

Pre-construction: site acquisition, planning & legals (3mths)
Construction: demolition (if needed), and construction (12mths)
Post Construction: Sales / letting (depends on project/market)

22
Q

How else would you check construction costs?

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A

Consult my Building Surveying team

23
Q

What is an All-Risk-Yield?

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A

Growth-implicit Yield used in an investment valuation that reflects all potential risk and rewards of the investment

24
Name two pros and cons of using argus developer?
Advantages: o Industry Standard o Simple Inputs o Easy to use Disadvantages: o Costly o Training o Not as transparent – hard when clients ask you about it
25
What are the different outputs of a development Appraisal?
Profit on Cost Profit on Equity Profit Erosion - construction elongated
26
Two pros and cons for a DCF method?
Advantages: o Easier to spot mistake – you can see the workings o Transparent: a lot more for clients to ask you about. o Useful when there is little market evidence. Disadvantages: o Complicated: may not be useful for less complex assets (small warehouse) o Open to interpretation (more areas for debate) o Can become very subjective (discount rate / growth)
27
What is included within professional fees?
* Architect -4% * Quantity Surveyor: 1.5% * Structural engineer: 1.5% * Project Manager: 2%
28
What does BCIS Stand for?
Building Cost Info Service
29
What are drawbacks to BCIS?
* Might lack of evidence given limited sample size. You’re probably okay in Berkshire. * Timing – these data points could have been from two years ago and with construction costs increasing significantly since the Ukraine war, these may not be accurate.
30
Can you walk me through your hammersmith example?
* Development App!! * Assessing viability office refurb * established GDV - TDC - Land Value = Developers Profit (PoC)
31
what were your timelines for your Hammersmith Appraisal?
Pre-Construction: 3 months Construction: 15 months Average Letting Void : 12 months
32
Hammersmith GDV - What was your: Rent All Risk Yield GDV
Rent: £50 psf ARY: 8.00% GDV: £17m
33
Hammersmith output: Land Value? PoC?
Outcome: Land Value: £1.5m PoC: 5% Intended: Land Value: £430,000 PoC: 17.50%
34
Hammersmith TDC: Construction? Planning? Finance?
Construction: £225 psf Planning: High-level appraisal: assumed £15,000 Finance: 10%
35
Did you pay any CIL / Section 106?
No, refurb
36
Can you walk me through your Industrial land purchase in Berkshire?
* Residual App * Establish land value for potential industrial site purchase * GDV - TDV - Developers Profit = Land Value
37
Did you have planning?
Yes for 22,000 sq ft of industrial space
38
What was the timeline for you're residual valuation in Berkshire?
Pre-Construction: 1 months (legals & DD) Construction: 9 months Average Letting Void: 9 months (agency team)
39
Were there any planning costs?
S106 cost estimates that they had negotiated with the council as part of the planning. As this site was previously an office block, there was little need for S278 cost. These costs were checked by our planning team, and were deemed to be within tolerance of what they would expect
40
GDV Assumptions? Rent? ARY? GDV?
Rent: £22 psf ARY: 5.50% GDV: £14m
41
TDC Assumptions: Construction? Planning? Professional Fees? Finance?
Construction: £105 Planning: 100,000 Professional Fees: 12% Finance: 8.00%
42
What was your Land value / Profit on cost?
PoC: 15% Land Value: £5m
43
What was the planning spec for your industrial site?
* Steel portal Frames * High spec, * EPC A, * every 10,000 sq ft we expected a loading door. * 10-12m eaves. * 5-10% office space
44
What is the difference between a Grade B / Grade A offer?
- LG7 lighting instead of LED lighting - Instead of a raised floor (wiring underneath) they have perimeter chunking.
45
What’s the use class for a shed
Use class B2
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