Viability Evaluation of Development Site

Instructions

You are employed in a leading firm of Planning and Property Development Consultants and have been instructed by a client to prepare a viability evaluation of the development site. Your client (Land Developers and Partners) is a major speculative trader developer that undertakes a wide range of mixed-used properties predominantly by borrowing the necessary capital and selling upon completion. The developer aims for a mixed-use development on the site but unsure how much to bid to acquire the site.

You have been asked by your client to provide professional advice on a possible development proposal; the viability of the proposal under expected future market conditions; and how much to offer (using the DCF approach) to acquire the outright ownership right.

The project would involve assessing the site area to identify development options and how your final proposal would fit within the neighbouring land uses. You can use the same design for the Development Process assignment, but you can also adjust your existing design (considering you have received feedback on it) or propose a new design altogether. You will also be required to undertake some desk study of secondary data sources e.g., CoStar, Zoopla, market reports, professional and academic journals, newspapers, government reports, development plans, planning policy documents and other supplementary materials available on the course Moodle, from the university library and websites of the relevant organisations.

1. Your client requires 15% return on development value while development finance interest rate is 7.5% per annum.

 

2. A minimum 12-month preliminary period, 5% management cost, letting fees 10% per annum and sale fees 1%.

 

3. If applicable, assume any office, retail and leisure premises are let on completion on Full Repairing and Insuring basis with a 3-month fit-out rent-free period.

 

4. You should also allow £50,000 for initial design costs, 5% of construction costs for contingencies and 12.5% for professional fees.

 

5. Gyms/art galleries on higher floors in an office block should be treated as office space.

 

6. Buy-to-let housing can be valued using either the income method or the direct comparison method since the units are currently empty. If selling as affordable housing, you will need to discount as appropriate.

 

7. When working out the maximum bid price for the sale, you should allow 6.8% land acquisition costs (to cover Land and Building Transaction Tax and associated legal and agent fees).

Your report will be graded using the following criteria:

It is normal for students to seek further clarification while writing the summative assessment, issues requiring further clarification might be generic or specific to individuals. The best way to ask such questions is to post them on the Moodle assignment forum where everyone can have a chance to see them and my responses. It will also prevent the same set of questions from being asked repeatedly unnecessarily. However, you are equally free to email me directly to ask questions that are peculiar to you.

Please bear in mind that I might be unable to respond over weekends and holidays. Accordingly, I would like to enjoin you to ask all your questions by the last Thursday preceding the assignment submission due date so that I can see the questions and respond in time before you turn in your work.