1
Q
What is the new Financial Viability Guidance?
A
Additional guidance: Financial Viability in Planning CONDUCT & REPORTING Effective 01 September 2019:
Principles: Professional Statement status. 14 mandatory reporting & process requirements when carrying out FVAs.
2
Q
Valuation of Development Land Information Paper No.12 (2008) - UK
A
Now withdrawn, but a useful guide of the two approaches available. ‘Development land’: cleared, or greenfield site, or site to be redeveloped by removing all, or substantially all, of the existing buildings.
and constructing new buildings.
- Establish the facts (inspection and site specific info)¬
- Assess the development potential (review current/emerging planning policy, review surrounding uses, consider land assembly options, assess environmental constraints).
- Value by the; 1. Comparison method, 2. residual method
- Assessing the land value (comparables, and residual)
- Reporting the valuation (basis of value, valuation approach, and all assumptions must be stated)
3
Q
What is the difference between a residual valuation and a development appraisal?
A
Both are sensitive to changing inputs.
Development Appraisal: A calculation used to assess the financial viability of a development scheme. Used to establish the profit on cost %. Assumes a site value/purchase price. POC = (GROSS DEVELOPMENT VALUE) – (TOTAL DEVELOPMENT COST + SITE VALUE)
Residual appraisal: Used to establish the residual value. Typically used for valuations using market inputs to establish residual Market Value, at one date in time. RESIDUAL VALUE = (GROSS DEVELOPMENT VALUE) – (TOTAL DEVELOPMENT COST + PROFIT)
4
Q
What is the GDV?
A
The MV of the completed proposed development. Use comparable method to determine rent, yield, cap value. ALL RISKS YIELD is used. Purchaser’s Costs are usually deducted for commercial property appraisals.
5
Q
What is the NDV?
A
GDV less allowance for purchaser’s costs. Reflects the transaction costs that would be incurred if the completed development was sold, again, on the date of valuation.
6
Q
Where do Purchaser’s Costs appear in appraisals?
A
Acquisition of the land
Disposal (development)
Disposal (units)
7
Q
What are Purchaser’s Costs made up of?
A
6.5% + VAT / 6.8% incl. VAT
5% SDLT
1% + VAT Agents fees
0.5% + VAT Legal fees
8
Q
Non Residential SDLT levels
A
NON-RESIDENTIAL:
Up to £150,000 0%
The next £100,000 (the portion from £150,001 to £250,000) 2%
The remaining amount (the portion above £250,000) 5%
When you buy a new non-residential or mixed use leasehold you pay SDLT on both the:
- purchase price of the lease (the ‘lease premium’) using the rates above
- value of the annual rent you pay (the ‘net present value’)
These are calculated separately then added together.
9
Q
Residential SDLT levels
A
Up to £125,000 0%
The next £125,000 (the portion from £125,001 to £250,000) 2%
The next £675,000 (the portion from £250,001 to £925,000) 5%
The next £575,000 (the portion from £925,001 to £1.5 million) 10%
The remaining amount (the portion above £1.5 million) 12%
Relief for First Time Buyers on first £300,000, unless cap value over £500,000.
10
Q
What costs are deductible from the GDV when using the residual method of valuation?
A
Total development costs and profit.
11
Q
What are included in the Total Development Costs?
A
- Site prep; demo, remediation, site clearance. Obtain a contractor’s estimate.
- Planning; Section 106 payments, typically S106/CIL are both charged. Section 278 (highways), planning consultants, EIA.
- Build Costs: Estimation. Source; QS estimate from client, BS estimate, BCIS (Building Cost Information Service).
- Professional Fees: 10%-15% + VAT of construction costs. Architects, Project Managers, Engineers.
Contingency: 5-10% of construction costs.
Marketing & fees: Marketing; based on evidence. Usually 1% of GDV. Sales fee 1-2% GDV. Letting fee 10% of initial annual rent.
Finance: Assumes 100% debt finance. Rate at which client can borrow the money (6%) OR Bank of England base plus premium.
- Site purchase finance: straight-line basis using compound interest. For length of development period.
- Construction finance: S-curve, monies drawn-down heavily in first half of construction.
- Holding costs (to cover voids until disposal): on a straight-line basis using compound interest.
- Developer’s profit: % of GDV or construction costs. 15-20% typically depending on risk. A lower return may be required if pre-lot/sold. GDV sometimes used for residential. Recently % return has increased due to market uncertainty.
12
Q
Do you calculate your costs for a development appraisal on a GIA basis or GEA basis?
A
(links to Code of Measuring Practice)
GEA – construction costs for houses
GIA – construction costs for commercial
13
Q
What are the weaknesses of a residual valuation?
A
Importance of accurate data on the outcome. V
Unstable/very sensitive to changes in inputs.
Does not consider the timing of cash flows.
Implicit assumptions are hidden and not explicit.
Does not allow growth
Need to cross check with a comparable site valuation if possible.
14
Q
What are the advantages of using a DCF calculation for the valuation of a development site rather than a residual valuation?
A
- Allows for the valuer to input any changes in costs or values over the project.
- It shows the timing of peak cash outlays
- Shows outstanding debt at any given point
- Accounts for phasing over the build period that must be reflected in the land value
- Allows for sensitivity analysis to examine the effect of input changes on the outputs.
- Allows for off plan sales to be factored in.
15
Q
What factors affect the sensitivity of an appraisal?
A
- GDV fluctuations
- Build cost fluctuations
- Finance rate
16
Q
What is a sensitivity analysis?
A
- A sensitivity analysis determines how different values of an independent variable affect a particular dependent variable under a given set of assumptions
- Required for key variables such as GDV, build costs and finance rate in order to show a range of values
17
Q
What are the main forms of sensitivity analysis?
A
Simple sensitivity: of key variables such as build costs, GDVs, yield, finance rate.
Scenario analysis: changing development scenario, e.g. modify the design
Monte Carlo simulation: using probability theory, software such as Crystal Ball.
18
Q
When might you be exempt from liability of CIL payments?
A
- Minor dev exemption – GIA less than 100sqm
- Charitable relief – mandatory or discretionary
- Exceptional circumstances relief – if cannot afford
19
Q
Are conversion costs different to construction costs?
A
Yes – do not have to build the core structure. Conversion costs will be dependent on the building’s condition. Not necessarily less; potential for contamination or severe defects.
20
Q
Are residual valuations and development appraisals Red Book compliant valuations?
A
Development appraisals – NOT; worth calculation
Residual – can be, but dependent on the instruction
21
Q
What do you understand about Affordable Housing?
A
Housing for those whose incomes are insufficient to allow them to buy or rent a home on the open market
Local planning policy will set out the required percentage of affordable housing required for new residential development
It can be in the form of social rented, affordable rented and intermediate housing
Social rented – owned by local authorities and private registered providers. Guideline target rents are determined through the national rent regime
Affordable rented - let by local authorities or private registered providers. Rent control of no more than 80% MR
Intermediate – homes for sale and rent provided at a cost above social rent, but below market levels e.g. shared ownership housing.
22
Q
What are the 2 main methods of development funding:
A
Debt finance – secured lending from a bank or other institution
Equity finance – own money, or selling shares in a company/joint venture
23
Q
What is the current Loan to Value ratio (LTV)?
A
In region of 60%
24
Q
What is Senior Debt funding?
A
The first level of debt borrowing and it takes precedent over any secondary/mezzanine funding
25
What is Mezzanine funding?
This is additional funding from another source for the additional monies required over the normal LTV lending
26
What are Swaps and Swap Rates?
Swaps – a form of derivative hedging rate for interest rates
| Swap Rate – the market interest rate for fixed rate, fixed term loans
27
What is overage/claw back?
The extra receipts (expenditure) received over and above the profits originally expected
It can be shared between the vendor/landowner and the developer in a pre-arranged apportionment
28
When is VAT payable?
On all professional fees
29
What is the profit erosion period?
The length of time it will take for the development profit to be eroded by holding charges following the completion of the scheme and cause the profit from the scheme to be completely drawn down = loss making!
I.e. interest charges
30
What are typical profit targets?
17.5% commercial
15-20% residential
6% if affordable scheme
31
What are ‘Rights of Light’?
The right to light of a building arises after 20 years uninterrupted enjoyment of light without 3rd party consent
If right to light is infringed, an injunction can be granted or damages awarded
32
What are three types of development land?
Green Field – clear site, no past use, difficult to get planning permission
Brown Field – previously used, may need to clear the site, possible contamination, easier to get planning
Combination of above
33
What is the difference between outline and full planning permission?
Outline – established the principle of development; Reserved Matters for details of it
Full – establishes full details of the scheme
34
As a developer, what factors would you be sure to consider when considering a development?
Property Market – supply and demand, economic cycle
Location
Access & Transport
Amenities
Supply Competition – from other developments
35
What is the typical development programme?
Pre-construction – site assembly, planning, removing covenants and easements, impact reports, investigations
Construction – site preparation and main building period
Post-construction – period of completion until fully let/sale or refinance of completed development
36
What do you need to consider when undertaking the site preparation?
Environmental issues, removal of hazards, archaeological investigations, H&S regulations, demolition
37
How do you account for loan to value ratios?
Apply 100% debt and then apply an interest rate (circa 6%)
38
What is forward sale?
To purchase a development at the end of construction at a fixed price based on today’s yield
39
What is forward funding?
The investor provides finance at a lower rate than might be achievable in the current market in return for a softer yield when the investor purchases the development
40
What is an option agreement?
The land owner sells the option to develop on the land to a developer who has X amount of years to act upon the option
41
How do you measure a development site?
You inspect the perimeter and then use Promap to establish the size (acreage)
42
What are current rates of finance (interest)?
Bank of England Base Rate = 0.75%
LIBOR = 0.56% for 3 month SWAP
Inflation Rate = 1.7%
43
Why does the finance cost differ from developer to developer?
Risk factors, the status of developer (independent vs. large developer), available equity, LTBV ratio
44
How do you account for risk in a development appraisal?
Profit on cost – % of GDV or total construction cost
Contingency
*Never in the yield
45
Do you need planning permission for demolition?
In most cases you will not need planning permission– unless LA has made an article 4 direction restricting
Need to apply for a formal decision on whether council wishes to approve details of how you wish to demolish
Listed Buildings – no planning application but may need Listed Building Consent
Conservation Areas – may need planning permission
46
Are you aware of any new guidance relating valuing developments?
Yes - Valuation of development property, 1st edition (published October 8th, 2019)
3. Establishing the facts
4. assessing development potential
5. Valuation: the market approach
6. Valuation: the residual method
7. Risk analysis and residual profit
8. Land in the course of development
9. Reporting the valuation
47
When inspecting a development site, what would you be looking for?
Evidence of contamination – chemicals, oils, oil drums, subsidence, underground tanks, bare ground, dead vegetation, landfill
48
What creatures would you not want to see on a development site?
Bats, Great crested newt, badgers, dormice.
49
If your appraisal produced a negative value, would you report this value to your client?
Yes.
50
How much does it cost you to submit a planning application?
Dependent on location and extent of scheme – use Planning Portal’s online fee calculator
51
What measures of profitability are there?
IRR, Profit on Cost, Profit Erosion Period, Rent Cover
52
Talk me through your hackney appraisal
My client wanted to design a scheme which made an adequate profit alongside the already known land value of £1.5m (book value). The scheme still needed to meet my client’s target profit of 15% POC
1. Inspected and measured the site using pro map
2. Gathered comparable evidence to calculate GDV
3. Deducted costs including demolition, planning, professional, construction, marketing and legal, finance
4. Finance - S curve for build costs base rate plus margin 100% LTV over half of the period (12 months)
5. Sensitivity – analysis affordable housing (request of client, as reproviding a HC may not have to be policy compliant)
53
How did you assess your GDV (Hackney)
I analysed comparable evidence to form an opinion of sales rate for new builds apartments in the area. I then multiplied the sales rate by the GIA to calculate the total GDV of the scheme. I had awareness to the unit mix and sizing. (1 and 2 bed units) , I price each individual unit using comparable evidence which provided me with a blended rate psf to use within the model.
54
Tell me about a sensitivity analysis you have carried out.
Simple Sensitivity – build costs (Croydon). The scheme was over 12 months away and construction costs are likely to fluctuate significantly during that time. The cost consultant report was only valid for 3 months due to this. I therefore applied sensitivity analysis for the construction costs.
55
Tell me about where you source information and data from for development appraisal.
Client cost consultant, sometimes BCIS, Libor, Rightmove, Land Registry
56
Tell me about how you would assist in the selection of appropriate sources of development finance.
I am aware of the varying types of funding available in the form of equity, senior debt and mezzanine debt. I understand that the funding arrangement for a project can be essential to its viability and would have regard to these different forms of funding and the varying risk and likely interest rates associated.
57
How did you assess development potential?
I didn’t as I was provided with a scheme to value. But had I been doing a RLV I would review the title to ensure no restriction preventing development, consult local and national planning policy, consider heights in the area, with consideration to daylight/sunlight and rights of light. We have an internal planning team who I would always consult prior to making any assumptions on development potential.
58
What costs did you deduct? (Hackney)
Demolition: £50,000
Asbestos removal £50,000 (3 contractors)
Planning: £100,000
> CIL borough and Mayoral
Build Costs
Professional Fees: Architects, Project Managers, Engineers (10%)
Contingency: 5%
Marketing & Legal 2%
Finance: Assumes 100% debt finance @ 6%
- Site purchase finance: straight-line basis using compound interest. For length of development period.
- Construction finance: S-curve, monies drawn-down heavily in first half of construction.
- Holding costs (to cover voids until disposal): on a straight-line basis using compound interest.
Land value: £5.3m
Developer’s profit: 10.2% POC (35% AH)/17.5% POC (15% AH)
- Less than 15% AH increase profit
59
What Land Value did you deduct? (Hackney)
Book value - provided by my client (3 months old)
60
What abnormals affected the site?
Ground contamination, as car parks may lead to hydrocarbons, and particularly because the new amenity space is over an old car park you’d have to be very careful to make sure no contaminants ended up in the top soil.
- Asbestos removal £50,000 (3 contractors)
Asbestos – removal specialist quotation.
61
Where were your build costs sourced from (Hackney?)
Client provided me with this from their cost consultant.
62
What planning obligations did you include?
- CIL - £60psm Mayoral CIL (of additional floorspace)
- £190psm borough CIL (of additional floorspace)
- In London, the majority of payments are now covered by CIL. S106 agreements now comprise relatively small fees whereas the CIL is the considerable payments for infrastructure. We therefore don’t input S106 costs into our appraisals.
63
How did you assess finance (Hackney?)
I am aware of the two main forms of finance and used debt finance as per my client's instruction.
64
What timings applied to your appraisal (Hackney)?
Pre-construction (planning, prep) 6 months, build period 15 months, private revenue sales 18 months.
65
What was the outcome in terms of viability? (Hackney)
The scheme was viable with 0/15% affordable housing. Was not viable with more than 15% affordable housing.
66
Talk me through your Croydon appraisal.
1. Inspected and measured the site using a trundle wheel
2. Gathered comparable evidence to calculate GDV
3. Deducted costs including construction, planning, finance, professional etc.
4. Finance - S curve for build costs base rate plus margin 100% LTV over half of the period (12 months)
5. 20% POC target
6. Achieved 22% POC
7. Sensitivity - costs in increments of 2.5% to 10% demonstrating the effect this would have on the profitability of the scheme
8. 2.5% but 5% increase and above would make the scheme unviable
67
What assumptions did you make (Croydon).
Sales rates
• Blended Sales rate resi £525
• Intermediate £420
• SR £200
```
Build costs
• Private resi £210psf
• AH resi £195psf
• Mayoral CIL £60 private resi
• Borough CIL £145psf private resi
• Development cost £10m
• Land purchase: £5.3m
• Profit: 22% = £1.76m
```
```
Timeline
• Pre construction 12 months (planning and VP)
• Construction 15 months
• Post construction 18 months (sales)
• Finance rate 6%
```
68
Why did you include profit but exclude SDLT?
Because my client already owned the asset
69
What are the benefits of your in house appraisal?
It provides the ability to generate different performance measures on the different uses to reflect the varying risk. For example, given NHS PS would retain the healthcare element, there would be no market risk for NHS PS or a developer (whoever builds) and as such this can be calculated at a different rate to the residential or other enabling use.
70
Did you incorporate a new build premium (Croydon)?
This depended upon the comparable evidence available. For the majority of projects I worked on, there was suitable new build comparables in the locality. In instances where new build comparables were not available, I made a judgement as to whether the scheme I was analysing would be more or less attractive to the market in terms taking into account location, unit size, condition, specification, parking, amenity etc when comparing against existing stock comparables and make adjustments where appropriate
71
What costs did you deduct? (Croydon)
Demolition: £50,000
Asbestos removal £50,000 (3 contractors)
Planning: £100,000
> CIL borough and Mayoral
Build Costs
Professional Fees: Architects, Project Managers, Engineers (10%)
Contingency: 5%
Marketing & Legal 2%
Finance: Assumes 100% debt finance @ 6%
- Site purchase finance: straight-line basis using compound interest. For length of development period.
- Construction finance: S-curve, monies drawn-down heavily in first half of construction.
- Holding costs (to cover voids until disposal): on a straight-line basis using compound interest.
Land value: £5.3m
Developer’s profit: 22% (target of 20%)
72
How did you assess development timeline? (Croydon)
Internal construction team
- Pre construction 12 months (uncertainty over VP)
- Construction 15 months
- Post construction 18 months
73
What additional costs were included? (Croydon)
Asbestos removal - quote from 3 licensed contractors.
£50,000
74
What fees did you deduct? (Croydon)
Marketing fees, agent fees, legal fees, professional fees (including planning fees, architects, project manager, engineers)
75
What us book value and why was this used? (Croydon)
Properties within the NHS PS portfolio are valued on an annual basis for audit purposes, the book value represents the latest value attributed to the property. This was used in the scenario of the brownfield site in Croydon to understand whether the scheme was viable with the land value set at the book value (in this instance the book value was only 3 months old).
76
What complexities did the scheme face? (Croydon)
The scheme was still subject to planning and there was a high risk of contamination due to the car park, though was difficult to account for at this early stage. There was also uncertainty regarding vacant possession which meant that there is added uncertainty in the market in say 36 months. Which has a knock on effect for sales and construction costs.
77
How did you build these into your appraisal? (Croydon)
- Quotes from three asbestos removal specialists all round £50,0000.
- Longer programme (12 months pre construction). Also ensured sensitivity was carried on build costs, likely to fluctuate drastically.
78
What was the outcome of your sensitivity? (Croydon)
A 2.5% increase in construction costs would still achieve a profit in excess of the target, any more than 2.5% would not.
79
Why did you use a 20% POC metric? (Croydon)
After explaining the complexities and uncertainties of the scheme coming forward, in consultation with the construction and development team 20% POC was established as reasonable to reflect the risk profile of the scheme.
80
What was the outcome? (Croydon)
The outcome was that with the land value being set at the book vale the scheme achieved a profit in excess of the target POC.
81
What are the various purposes of a development appraisal?
To assess the profitability/viability/suitability of a development scheme.
82
How so you ensure inputs and assumptions are appropriate and reasonable?
I cross check these/verify these wherever possible. Cost reports I check with construction team and BCIS I check with the construction team.
83
What’s the difference between a residual valuation and a development appraisal?
* Residual assesses the land value
* Development appraisal establishes the profitability or viability of a scheme. It will build in assumptions based on the developer and will therefore it may generate a land value but this is not a market value.
84
How do you reflect S106/CIL in development appraisals?
- This is a development cost, s106 contributions differs depending on local authority, type of development and existing infrastructure.
- Some LA’s have SPDs (supp planning docs) or SPGs (supp planning guidance) on s106 which you can base assumption on or most have a s106/CIL officer who you can liaise with.
(i) CIL regulations – payment structure which is non-negotiable (staged payments triggered upon the commencement of development)
You would almost always consult a planning consultant to ascertain reasonableness of your assumption.
85
What are the key points of the RICS Professional Statement Financial viability in planning: conduct and reporting, 2019?
Professional Statement Effective 1st September 2019
• This professional statement sets out mandatory requirements on conduct and reporting in relation to FVAs for planning in England, whether for area-wide or scheme-specific purposes
• Sections 2.1 to 2.14 set out what must be included in all FVAs and how they must be carried out.
• 2.1 – the report must include a statement that, when carrying out FVAs and reviews RICS members have acted with objectivity, impartiality, without interference and; with reference to all appropriate available sources of information.
- 2.2 TOEs must be set out clearly and included in all reports
- 2.3 No contingent fee statement
- 2.4 transparency of information
- 2.5 confirmation where the RICS members is acting on area-wide and scheme-specific FVAs
- 2.6 Justification of evidence and differences of opinion
- 2.7 Benchmark land value and supporting evidence
- 2.8 FVA origination, reviews and negotiations
- 2.9 Sensitivity analysis
- 2.10 Engagement
- 2.11 Non technical summaries
- 2.12 Author(s) sifn-off (all reports)
- 2.13 Inputs to reports supplied by other contributors
- 2.14 Timeframes for carrying out assessments
86
What is there to be conscious of when using comparable land sales?
```
So many variables with land
• Location likely to be vastly different
• Access
• Topography
• TPOs
• Amenities
```
87
What did you learn on your ARGUS developer training course?
I improved my understanding of how to use ARGUS developer including how to undertake sensitivity analysis of key variables.
88
What did you learn on your CPD “method and process of conducting development appraisals”?
How planning costs should be included within a development appraisal, also increased appreciation for the importance of sensitivity analysis.
89
How did you cost/value the different healthcare and residential elements?
Residential was based on the client’s cost report/BCIS. The healthcare used the client’s cost report or their standard rate of £278psf
Value - resi (comparable evidence/AH team)
Health - No value attributed as NHS PS would retain this, any developer would receive no profit.
90
Why did you use BCIS for build costs (lennard road) were you not provided these?
As it was an internal client as there are pressures on the internal construction team I was told to gather costs from sources available i.e. BCIS and consult the internal construction team to confirm (as they would likely be the ones undertaking the project).
91
How is interest on the land/construction costs calculated?
- Land (straight line)
| - Construction costs (s curve)
92
What assumptions did you make for Hackney? (sales rates/costs and overall figures for 20% and 35% )
Sales rates
- Private £775
- Intermediate £465
- Social rented £200
Costs
• Private resi £220 psf
• AH resi £210 psf
• Healthcare £278psf
```
Overall (35%)
• GDV: £12.2m
• Development cost £9.5m
• Land value: £1.5m
• £990,000 profit
• Profit: 10.2% (UNVIABLE)
```
Overall 20%
* GDV £15.1
* Development Cost £9.9m
* Land value £1.5m
* Profit 15.0% POC (viable)
* £1.55m profit
93
What is the background story to Hackney? (site area etc)
* Site area 0.2Ha
* Scheme 5 Storeys
* 5 Storey former factory to the South (converted to residential)
* 1 storey alms-houses to the north
94
What is the background to Croydon?
- Currently 4 storey building of admin and some clinical
- Occupiers vacating (unknown when exactly, likely to be in next 12 months)
- Surrounded by residential 3 storey buildings with a school across road
95
What are the summary figures for Croydon (site area, units etc)
* 64 units (16 units AH) (29.63%)
* 5 Storeys
* 0.2 Ha
* 30% affordable housing
* 45 units (blended sales rate £525psf)
* 19 (12 SR 7 Intermediate)
* GDV £17.4m
96
What sales rates did you use for Croydon?
* Blended Sales rate resi £525
* Intermediate £420
* SR £200
97
What build costs did you use for Croydon?
* Private resi £210psf
* AH resi £195psf
* Mayoral CIL £60 private resi
* Borough CIL £145psf private resi
* Development cost £10m
* Land purchase: £5.3m
* Profit: 22% = £1.76m
98
What is BCIS?
Independent cost data for the built environment. Allows you to benchmark projects against similar schemes using a database of more than 20,000 cost analyses.
99
The cost figure in BCIS, what does it include/exclude?
Base build + prelims (everything else excluded)
100
What analyses did you use for BCIS?
800 – residential facilities and 2019 for the year (done in 2018)
- Selected new build and input the size, number of storeys etc.
- Could’ve looked at with and without basements/air con
- Adjust for data and adjust for location
- See average prices for buildings with carrying heights
- Can restrict to last 5 years etc.
- See full summaries of projects
- Can then click benchmark and see how a project compares to other analyses within your data selection
101
What else would the BCIS report show?
- Site conditions
- Accommodation and design features
- Contracts breakdown (measured work, prime cost sums, provisional sums)
102
What costs would be shown? (BCIS)
- Substructure
- Superstructure
- Finishes
- Fittings and furnishings
- Services
103
What calculators are there on BCIS?
- Early cost advice (order of cost estimate)
- Insurance reinstatement cost assessment
- Depreciated replacement cost valuation
104
What are the limitations of BCIS?
What are the limitations of BCIS?
- Out of date by the time you get it
- Usually costs provided are large developers
- Only includes base build + Prelims
- Insufficient specification
105
What was the structure of the cost report for Hackney?
Exclusions - Site acquisition
- Abnormal Ground Conditions
- Asbestos
- Specific requirements of Local Planning officer
- Upgrade of any electrical mains
Notes and Assumptions
- GIA as per floorplan provided
- Normal ground conditions
- Any allowance for off site highway works
- Allowance for group 2 fit out healthcare
Group elemental breakdown
- Facilitating works
- Substructure
- Superstructure
- Internal Finishes
- Fittings, furnishings and equipment
- Services
- Prefabricated buildings and building units
- Work to existing buildings
- External works
- Contractor prelims
- Contractors overheads and profit
- Project team fees
- Risk %
- Inflation
106
Tell me about your due diligence when undertaking a development appraisal?
* Title documents, ensure no restrictive covenants, environment agency – to check whether development is within the flood risk area (1,2, or 3)
* Site specific – connections, access, protected species, rights of light.
107
How do you calculate net development value?
Net development value is calculated by deducting purchaser's costs such as stamp duty and legal fees from the gross figure
108
What is the advantage of your in-house appraisal?
It provides the ability to generate different performance measures on the different uses to reflect the varying risk. For example, given NHS PS would retain the healthcare element, there would be no market risk for a developer and as such this can be calculated at a different rate to the residential or other enabling use.
109
What is internal rate of return?
The internal rate of return (IRR) is a metric used in capital budgeting to estimate the profitability of potential investments. The internal rate of return is a discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero
110
What is viability?
The measure of economic value in building a scheme
111
What is a Financial Viability Assessment (FVA)?
Viability assessments are financial appraisals of the amount of profit a developer can expect to make on a scheme.
112
Why would one be carried out? (FVA)
If expected profits are below 20%, the developer could argue that planning costs make the scheme unviable e.g. the number of affordable homes the developer is required to build under Section 106 agreements can be knocked down, according to the government’s planning rules.
113
hat are the key viability benchmarks?
Benchmark values relates to industry standard assumptions which are standardised within the National Planning Policy Guidance (for development viability within planning process):
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o GDV – market advice
o Build costs – refer to Building Cost Information Service (BCIS) / build costs provided by a QS
o Contingency – 5-10%
o Professional fees – 10-15% on build costs
o Land acquisition costs
Stamp duty – in accordance with law – between 4-5%
Agent – 1.5%
Legal fees – 0.5%
o Sales agent – 1.5% of GDV
o Sales legal – 0.5%
o Additional costs – planning obligations such as CIL/s106 costs as per Development Plan
o Developers profit
Market housing – 15-20% on GDV
Affordable housing – 6% on GDV
Commercial – 15% on cost
o Finance – 6-7% (100% debt funded)
o Benchmark land value
EUV plus premium between 10-20%
AUV (policy compliant scheme)
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114
What are key inputs and outputs for FVAs?
Inputs (see above list (all costs))
GDV: sales values, yields, rents,
Costs: build/abnormal costs, finance, professional / agency / legal fees, acquisition costs etc
Outputs
Land value / profit margin
115
What is site value for a scheme-specific FVA?
Residual land value
116
What happens if a scheme is deemed financially unviable for a developer?
If the scheme is unviable and planning obligations cannot be reduced / assumptions amended to make the scheme viable then it will not be developed.
117
When undertaking a Local Plan or CIL FVA, how is site value defined?
- This uses hypothetical typologies (average values/costs/benchmark land values) so is quite high level.
- This means sites with similar characteristics (brownfield, size, use / type of development) are grouped together and average costs/values associated.
- Plan makers can then come to a view on what might be an appropriate benchmark land value and policy requirement for each typology.
118
What document would you refer to for carry out FVAs?
- RICS Professional Statement Financial viability in planning: conduct and reporting
- I would also refer to the relevant section within the National Planning Practice Guidance (NPPG).
119
What is mezzanine finance and how is it priced?
Hybrid of debt and equity financing Mezzanine lenders will invest in a development project usually on the understanding and agreement with the developer that they will receive their initial investment back plus a small amount of interest, in addition to an agreed percentage of the development’s profit. Alternatively they may just charge a higher rate of interest or have an agreed fee.
Mezzanine development finance works to bridge the gap between a development loan and the amount of funds that the developer has to put into the project. The Mezzanine funder will usually take a second charge on the development, sitting behind the first charge of the ‘senior debt’ loan provider.
120
What is the difference between senior debt and equity finance?
- Senior debt is often secured by collateral on which the lender has put in place a first lien. It is a class of corporate debt that has priority with respect to interest and principal over other classes of debt.
- Equity financing is that there is no obligation to repay the money acquired through it. Of course, a company's owners want it to be successful and provide equity investors a good return on their investment, but without required payments or interest charges as is the case with debt financing
APC refresh
flashcards
Decks in class (20)
# Cards
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Purchase and Sale0
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Purchase and Sale COPY108
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Data Management/Property Records73
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Measurement95
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Case Study117
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Inspection and Health & Safety112
-
Valuation131
-
Development Appraisals120
-
Strategic Real Estate Consutlancy59
-
Ethics131
-
Sustainability32
-
Auctioneering117
-
Data Management/Property Records COPY74
-
Obvious Case Study Questions24
-
Accounting & Business30
-
Case Study COPY117
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Valuation COPY131
-
Red Book36
-
Surveying Safely18
-
Purchase and Sale COPY COPY108
