Purpose of a development appraisal?
Assess the financial viability of a development scheme.
Why is a development appraisal used?
- Establish a residual site value.
- Assess profitability of a scheme
- Assess sensitivity to changing inputs.
BASED ON CLIENTS INPUTS
What is a residual site valuation?
Market value of a site based on market inputs at the time of the valuation
Limitations of Residual Valuation
- Importance of accurate inputs
- Sensitive to minor adjustments
- Cross check with comparable site.
- Assumed 100% debt finance
What is the methodology of a residual site valuation?
- GDV
- Site Preparation costs
- Planning costs (S106, CIL)
- Build costs
5.Professional Fees (8-12%)
6.Contingency (5-10% build costs)
7.Markeing costs - Disposal Fees
- Finance (100% debt)
10.Developers Profit (15-20%)
11.SENSITIVTY
How do you calculate the GDV?
- Market value of proposed scheme at todays date
- Use comparable method
What are the planning costs?
- Section 106 payments (Negotiable planning obligations)
- CIL (Fixed payment, local and mayoral)
- Other costs - Planning consultant fees, Planning application
What are the build costs?
- Cost to build the development. ON GIA
- Found using Build Cost Information Server (BCIS)
- Average prices page on BCIS
- Or use QS
- S curve used to show construction costs. Most money used in middle of development
What are professional fees?
- 10-15% of total construction costs.
- Architects, surveyors, engineers, contractors
what are the Marketing costs?
1-2% of GDV. Assume realistic marketing budget.
What are disposal fees?
Sales agent - 1.5%
Legal fees - 0.35%
How do you calculate the finance rate?
Assumes 100% debt finance.
LEARN
What is Developers Profit?
- 15-20% - dependant on risk
- Profit on cost or GDV
What is a sensitivity analysis?
- Helps make more informed decisions and manage risks more effectively.
- Important in volatile market
What RICS standard should you refer to for Residuals?
RICS Professional Standard - Valuation of Development Land (2019)
Talk to me about your Illford (L2) residual appraisal?
Client wanted to know the land value of a potential change of use scheme, office to resi
I found comparables to establish GDV
Then inputted costs provided by client
Barking Road Level 3
- Development appraisal for extant scheme (24 resi units) and proposed scheme (30 units)
- Established GDV
- Cost Plan provided
- Proposed scheme RLV only marginally higher.
- Planning risks and costs makes extant scheme better.
Chadwick Street Level 3
- Development appraisal for old job centre
- Calculated GDV - Upper floors higher value due to better quality.
- three scenarios - PD Single. PD+1, PD+2
- Build costs using BCIS - top floors would be more expensive to build
- Finance 7%
- Advised the with two additional floors highest value. But planning risk due to building heights
How do you get build costs from BCIS?
Development type, borough type and number of storeys
What are the weaknesses of BCIS?
- Not updated daily
- Large range
How is finance rate calculated?
- Base rate + arrangement fees
How is finance rate made up?
Weighted average of cost of equity and cost of debt
How would your residual change if your scheme didn’t have planning?
- Professional fees rise
- Contingency rise
- Profit rise
- Time scales would be bigger
- Finance would be more
- No planning fees
