Development Practice of NG2 6HF in West Bridgford - Case Study Example

NG2 6HF Development Name Course Lecturer Date Executive summary The chosen development project for this proposal is the development of NG2 6HF in West Bridgford Nottingham, Nottinghamshire. This NG2 6HF site is strategically placed and therefore holds a special interest to the owners. The development of NG2 6HF site in West Bridgford Nottingham, Nottinghamshire is a project oriented in nature. Regardless of when the project will commence, there are a range of several factors that determine the success of this development project. This report provides planning for the development of West Bridgford Nottingham, Nottinghamshire NG2 6HF site. This planning will have to be followed properly while its progress should be closely monitored throughout the development span. Planning will be instrumental to the development of this site. Proper planning will determine the success of this project because the execution of the same will indicate the end results. As such proper planning will contribute significantly to the success of the project. As the facilitator and the responsible person for the development of the NG2 6HF site, I will ensure that the planning is detailed and systematic. The planning will also include other members concerned. Due to the unexpected and out of plan occurrences, adjustments will be made where necessary upon the implementation of the plan. This report seeks to provide three main objectives. These are acceptable quality, this is very essential and the development of the site to put up commercial and residential property will ensure that the quality of the properties meets all the quality specifications by the law and meet the expectations of the owners as well. The other objective is timely completion, the time is a limited factor and therefore constrain in this development project. The implementation of the project will ensure that they adhere to the plan and complete the project within the stipulated time. This will also be within the clients stipulated time. To ensure completion of the development within the time frame, the project executors will use rime management system. In addition, the time will also be used as a measurement tool. This will help to keep the project on course. This will save a great deal of time. Lastly, the development of the site will look to carry out the project within the budget. Budget adherence is essential; it will avoid unnecessary expenses and costs. Funding of the project is another constrains, the funds are limited in supply and the providers of funds will have keen interest on how the project is adhering to the budget. They are the project sponsor and therefore will seek their approval. Achieving the above three objectives will be a clear indication of success in developing NG2 6HF site in West Bridgford Nottingham, Nottinghamshire. Although they are not only the objectives of the project, they also serve as critical success factors of the project. They will have a great bearing on the outcomes of the project. The availability of human resource to execute the project is another critical factor. To be successful, the development of NG2 6HF site in to commercial and residential properties will depend on the availability of personnel, their skills, experience and knowledge. The management will ensure that the required personnel will be available at the needed time and at the right place. In addition, the report provides a detailed developmental appraisal including the sensitivity analysis and cash flow analysis. The strategy that will be used to acquire the site is also very important and therefore will be outlined. Importantly, the report provide recommendations to the board, the recommendations will include the probable and potentials risks that face the development of NG2 6HF site as well as how the risks will be mitigated. Contents 1.0.Introduction 1 2.0. The Acquisition 3 3.0. Financing 5 4.0. Cost Estimation and design 7 5.0. Recommendation 9 6.0. Conclusion 10 References 12 1.0. Introduction The success of developing NG2 6HF property will be defined by its outcomes in relation to the impacts to the economy, environmental and social pillars of sustainability. The tasks in developing NG2 6HF site in to property will not be done serially but will overlapping; however, they may be done simultaneously. The stages include Acquisition, Financing, Market Studies and Marketing Strategies, Environmental, Approvals and Permits, Improvements, Transport and Accessibility, and Disposition. Acquisition will include tasks that determine the potential development of the property. Acquisition is the process of evaluating the viability of the project, it indicates whether it is important to continue with the project or not. It is vital to carry out the evaluation of NG2 6HF disposition so as to capture the value created by the property. We will analyse whether the need and availability of resources, temperaments such as financial, human, and physical temperaments, and ability necessary to complete the project. The main tasks include feasibility, underwriting, contract, due diligence and closing (Fessenbecker, 1998). The financing juncture will require evaluation in order to examine the type and amount of capital required financing the project in all the costs involved. The main tasks in financing include projections, financial reporting and management, and capital formation and accumulation. It is at this stage that there will evaluations of the future market and current market conditions for the end users expected to utilise the property. The environmental task will involve the evaluation of the past, present, and future environmental conditions of the surrounding area surrounding the site. This will involve the analysis of the cultural and historic condition that will affect the surrounding area during and after the completion1 of the project. The main tasks in the market analysis will include projection of market conditions, market strategies, and advertising and promotions (Venables, 1994).  An Environmental Impact Study will be required to evaluate the effect of the project on the environment. Approvals and Permits are essential for the project to take off, they are important as they improve the project during the development process. The approvals and permits will be sourced from the state, municipal and federal governments and the local; councils. Improvements will involve determining what kind of improvements, whether vertical or horizontal; private or public, require will be constructed, engineered, designed, and planned. The main tasks in this stage include planning and design, engineering, and construction. The transportation systems are very important as well, the users will need it to access the property. The final stage is disposition and sale (Guthrie, 1999), the main factor in this is stage will be to complete the due diligence to the project sponsors. This proposal analyses the benefits of developing NG2 6HF site according to the S106 obligations in relation to the market value of the property. This paper will analyse the in-depth development practice of NG2 6HF site in West Bridgford Nottingham, Nottinghamshire. The table below provides a summary of developing NG2 6HF. Address Ludlow Hill Road, aerial route Melton road, West Bridgford, Nottingham NG2 6HF. Location NG2 6HF is situated on a business park off the Melton road. Melton Road is a main aerial road and route that pass through the West Bridgford. West Bridgford is a suburb which is about two miles south of the main City Square. The surrounding environment provides a good site for developing property for business. The areas allocated around the site that will bring good business include Newark, Loughborough, and Grantham. Description of the property The unit property is constructed of bricks. The roof is corrugated. The floor will have a concrete floor. The ground floor is 146sqft. Tenure Leasehold Tenancies Vacant Development appraisal The appraisal will contain a report to evaluate the development of the existing structure by approved architects. Residual value £ 21,540,000 The accommodation space for each unit will be 430 square feet. The developed property will be offered at an Effectively Full Repairing and Insuring Lease. The lease period will be the amount agreed at a rate of £3,000 per year. There will be a parking area in front of the unit. All legal costs will be shifted to the tenant. All enquiries provided by this report are correct and in correspondence to the S106 obligation of financial contribution and economic contribution to development of the Nottingham. 2.0. The Acquisition Development will begin with the acquisition of the site NG2 6HF site. The property will provide an opportunity to complete the task of constructing the factory and other rental units, the property will then be sold at a profit. The availability of a land loan and warehousing will also be evaluated; this will also be included in determining the appropriate price for the site. The financing of this project will come from the financial institution offering the best terms. The financing will be in form of loan to cater for the acquisition of the site and construction of the commercial property (Boyd, 2003). In the initial stage, the client will evaluate the suitability of the land site. The demand for business units in the area is high. The evaluation of the land loan will involve financial appraisal and market research which will guide the client throughout the project. The appraisal will involve examining the supply and demand of business units in the area. The client will also carry out a legal investigation involves ground investigation of the property. The ground investigation requires the investigation of the physical attributes and capabilities that the site will accommodate. The funding for the site requires an estimation of the returns each unit is going to give as returns. Figure 2.0 shows the returns that each unit is expected to give: The rentable area and the gross area income will help to determine the suitability of the site. Figure 3.0: Shows the estimated value of industrial business units from 2010 to 2013 in Nottingham : The property value for industrial units and property in the area has been rising. This shows that the demand for rental space for business activity is relatively high thus the supply is not sufficient to cover demand. The feasibility study carried above shows that the project is viable. This facilitates setting the project to the next phase, which is financing. 3.0. Financing The client will determine the type of finance option to take. The construction of the factory will require both long term and short term finance. Most public sector financial institutions in the city will be willing to hold financial asset finance. The client will acquire the services of accountants to develop estimated financial reports. The estimate financial reports will be used to represent the viability of the project to the financiers. The accountants will also provide the required financial advice on the financial management required and structure of capital required for the completion of the project. The client has the option of getting finance form the money lending institutions or shifting the burden of cost to the owner. Shifting burden of expenses to the owner is called the Sell-Build-Transfer type of financing (Boyd, 2003). The Sell-Build-Transfer type of development can become a challenge to the development of the site. The owner may lack sufficient capital or may delay in providing the funds. This can cause delay in the completion of the project. Therefore, the client will look at the option of approaching a public financial institution for long term and short term financing. Figure 4.0: Shows an estimated income return for the property: Revenue from the parking lot will depend on the number of parking lot available. The estimated number of parking lot in the site will be depending on the number of customers every year. Property taxes and operating expenses are based on the room, square foot or meter, and the costs per unit. The net revenue is arrived at by subtracting the gross revenue form the operating expenses and property taxes. That is: Net Operating Income=Net Revenue-Operating Expenses-Property Taxes. An allowance of 6% is given for the vacancy rate. For example, if the owner is expecting to earn £60,000and the vacancy rate is 6%, then the allowance would be £10,000 and the earnings will be £54,000.The financial statement will be presented to the public financial institution to grant a loan for the development of the project. The accountants will however break down the estimated projections in terms of the holding costs and capital expenditures. The accountants will analyse the given risks and the timing of expected cash flows from the project development. The accountants will also analyse what type of security will be required for capitalization. The future financial reporting of the property will be done according to the international accounting standards at the end of every financial year. However, a quarterly financial statement will be produced to report on the progress of the project (Bergsman, 2013).  The following table indicates the costs and profit from the development of the site; Revenue Price per unit Gross sales Sales;     Detatched dwellings   13,750,000 Affordable housing   1,814,450 Total sales valuation   15,564,450 Costs of acquisition     Residialised costs   4,873,450 Agent fee   50,000 Stamp duty   210,000 Town planning   30,000 Legal fee   26,000 Total acquisition costs   5,189,450 Construction costs     Detatched dwellings   5,000,000 Affordable housing   960,000 Total construction costs   5,960,000 Contingency   200,000 Demolition costs   80,000 Total contingency and demolition costs   280,000 Professional fees     Quantity surveyor   90,000 Architect   124,000 C.D manager   62,000 Structural engineer   62,000 Project manager   125,000 Mechanical and electrical engineer   62,000 Total professional fees   525,000 Marketing and letting     Marketing   50,000 Disposal fees     Sales agent   70,000 Sales legal fees   40,000 Total disposal fees   110,000 Total costs   12,114,450       Profit   3,450,000     15,564,450 4.0. Cost Estimation and design Under this phase, the client carry’s out cost estimations and preparation plans for the property. This stage is normally done simultaneously with the other development process stages. The client engages the services of professional consultants such as the architect, quantity surveyors, and building surveyors (Long, 2011). The msn role of the architects is to carry out the construction and design the appearance of the building. The architect also designs the refurbishment of any existing building on the site. At times, the client an also engage the architect to provide administration services of the building contract. The quantity surveyors advise the client on the estimated costs of the building and miscellaneous costs involved. The quantity surveyor can also be known as the building accountant. The quantity surveyors build their advice by carrying out costing of designs developed by the architect, administering tender for the building contract and proposing the best kind of building contract to the client (Hamline University, 1984).  The building surveyor carries out the re-development phase. The building surveyor surveys the site and advises the client on the alterations that are required for the site. The building surveyor also carries out an environmental scan on the effects that the project will have on the area. Apart from the costs of experts other expenses will include hard costs, furniture, fixtures and equipment, and general improvements. For this project the assumption of the project costs will be done on a lump-sum basis. Figure 5:0. Shows estimated project cost of the development. The capital interest’s costs include operating deficit costs and original debt costs. The capitalization interest is assumed that the building is being constructed and no extra income is generated. Deficit operating costs arises when the client starts to pay for expenses and the client do not have adequate income to cover the operations of the project. The client may have to create a Loan to Cost ratio to analyse Equity and Debt levels. He Loan to Cost ratio is developed based on property developments that are comparable. The client must also carry out sensitivity analysis such as internal rate of return and return on investment to determine the financial benefits of the project. 5.0. Recommendation The following recommendations are provided based on the identified issues relating to the development of NG2 6HF site in to property’ It is very important that both the owner and the company to draw an agreement as to the apportionment of the cost in relation to the development of the property. Here, the apportionment will reflect the site value, cost as well as sizes. The management team need to present a simple representation of the critical relationship that exists between the project planning and development. If this does not happen there will be variation in term of density, changes in value as well as variations in both risks and planning The client need to review the price agreed for securing a property and whether all the purchasers in the agreement are interested in occupying the final development at hand. This is important as it enables the client cross check the project activities. It is necessary that the client understand that any minor changes made to the variables in the development assessment can have an inconsistent effect on the viability of a scheme. There is need to understand that the development appraisal of NG2 6HF is continuously evolving. Time to time, it will be essential to change key variables to suit into the changing client demands. These changes can include differences to build costs, timings of the development (which impacts on interest costs), legal agreements and even considerable changes to the arrangement may be required to adapt to variations in market conditions. If the land has previously been developed these cost increases must be included in the development appraisal as it is not likely to decrease the land value. Therefore, unless costs savings can be made somewhere else, the effect is a lessening in profit levels. In many cases, this can result in the system becoming economically unrealistic so development does not occur. 6.0. Conclusion This report outlines the importance of incorporating all development stages in development of NG2 6HF in to commercial property. With increased talks on sustainable development, each development needs to align itself to the three pillars of social, economic and environmental. Based on the economic role, the project provides an economic value that is attached to this project. On the social value, the project seeks to provide employment to the community and therefor the community is at a position to improve their standard of living. The project plays a critical role towards ensuring that the environment is protected. Here, the project management will ensure that natural resources are utilized properly through minimizing wastage by way of recycling and reusing. Ensuring that the project adopts sustainable development requires careful consideration to both viability and cost involved. Therefore, the project has ensured viability, through careful analysis of the costs of any requirements likely to be applied to development, such as requirements for affordable housing, values, organization contributions of other requirements should, when taking account of the usual cost of development and mitigation, provide competitive earnings to a willing land proprietor and willing client to allow the development to be deliverable. A site is feasible if the value produced by its development surpasses the costs of developing it and also delivers sufficient inducement for the land to come forward and the development to be started (Boyd, 2003). References Bergsman, S. (2013). Maverick real estate financing the art of raising capital and owning properties like ross, sanders and carey. Hoboken, N.J., Wiley. http://rbdigital.oneclickdigital.com. Boyd, B. (2003). Real estate financing. New York, Law Journal Seminars-Press. Fessenbecker, G. (1998). Environmental issues and the construction contractors. Eugene, Ore, Construction Contracting Press. Guthrie, P. (1999). Environmental issues in construction: a desk study. London, CIRIA. Hamline University. (1984). Real estate project finance. St. Paul, Minn, Advanced Legal Education. Long, C. (2011). Finance for real estate development. Washington, DC, Urban Land Institute. Miles, M. E., & Miles, M. E. (2007). Real estate development: principles and process. Washington, D.C., Urban Land Institute. Tiesdell, S. (2011). Urban design in the real estate development process. Oxford, Wiley-Blackwell. Venables, R. (1994). Environmental handbook for building and civil engineering projects : checklists, obligations, good practice and sources of information Vol. 2 Vol. 2. London, CIRIA, Construction Industry Research and Information Association [u.a.]. Read More