Demonstrate critical understanding of the property development cycle, the process of valuing and developing land for residential, industrial and commercial purposes and the ability to communicate information, arguments and analysis effectively to advise stakeholders.

Development and Appraisal Assignment 2

LO1 Demonstrate critical understanding of the property development cycle, the process of valuing and developing land for residential, industrial and commercial purposes and the ability to communicate information, arguments and analysis effectively to advise stakeholders.

LO2 Demonstrate critical understanding of client briefing to the process of developing land and property in all sectors.

LO3 Undertake financial appraisals using residual and cash flow techniques, risk analysis and sensitivity analysis for different development schemes including the evaluation of the role of and limitations of market data used in such appraisals.

LO4 Evaluate sources of finance and alternative funding options for different development schemes.

Task 1
Using the details on the plan provided in Appendix 1 and the schedule of accommodation provided in the scenario, you are required to produce a residual calculation to establish the profit that Aprilla Developments might achieve from the scheme. Calculations should be prepared either on a spreadsheet such as Microsoft Excel or presented in a Word (or similar) document where calculations have been undertaken manually. It is anticipated that the scheme will take one year to build, and that finance is available at 8% for the entire cost of the scheme although they will be funding the scheme themselves with cash. Carry out research, in respect of building costs, ancillary costs, and house prices and making any necessary assumptions prepare a residual appraisal which should include, as a minimum, the following information:
• full details of the input figures you are using in the appraisal including comparable properties, building costs, and other costs likely to be involved in the scheme;
• the extent of social housing likely to be required on a site of this size;
• all of your calculations of the individual input elements in the appraisal; and
• full justification of the assumptions, costings and input figures that you use.

Task 2
Using the profit (or loss) established in Task 1, provide two separate sensitivity analyses that models the impact of the following changes to the input variables in the scheme. Include a brief critical evaluation for your clients of the limitations of market data used in these appraisals and highlight how they might maximise the profitability of this site.

Scenario a)
• House prices increase by 10% before start on site;
• Building cost inflation is 4% per annum;

Scenario b)
• House prices fall by 5% before start on site;
• The local authority impose a CIL of £100/sq.m. with immediate effect.

Task 3
The Directors of Aprilla Developments have now found a further site that they want to purchase. This means they are no longer able to fund this development from their cash holdings. They still want to carry out the development but need some basic guidance on funding options.
Prepare a Briefing Note that outlines and evaluates various potential sources of finance that might be available to them.