URBanise Developer Client - Case Study Example

Report to uRBanise developer client, regarding a potential development project which is located near Preston city centre. Table of Contents Executive summary 4 Introduction 4 Step one; ascertaining the yield % in Preston city centre 5 Similarities and differences 9 Calculation of the entire costs of the building 11 1. Cost of Demolition 11 2. Cost of the building 12 3. Planning fees 12 4. Building regulation fees 13 5. Site investigation costs 13 5. Funding costs 13 6. Banke fees 13 7. Short term funding 14 8. Marketing promotion 14 9. Developer’s risk and profit 14 11. Professional fees 15 Reference list 17 Antill, NALK 2008, Company valuation under IFRS, Harriman House, Petersfield. 17 Executive summary After appraising the case scenario for URBanise , it is obvious that the are prospecting to venture in viable project within the Preston city along the Gimstraw Street due to increasing growth with high returns on investment in the area. On the basis of these factors, numerous diverse aspect sorts of industries are growing as well as controlled to protect the expansion focusing on diverse existing opportunities. This specific progression draws the consideration to the diverse lad development projects as well as it may grow due to centering on growing demand on this feature. In this regards, the situation permits investors to provide interest on appropriate development connecting the significant development project that is situated in Preston more specifically at the edge of the city along Gimstraw Street opposite the church street. As results, comprehensive justification for the appraisal approach together with approximated numbers will worked out and provided to the URBanise in order to give a good reason for venturing in Preston city. Introduction The project intends to provide a viability report on the proposed development to URBanise. The viability is on the basis of land development valuation at Gimstraw Street in Preston city. From the evaluation of the proposed development in Preston, the URBanise has advised to venture in the proposed development due to the fact that it depicts financially significance in the prospect. The proposed site is significance for business development due to the fact that it is close to business center with presence of car packing. The proposed business will be appropriate due to the fact that it will provide commercial services as well as shops. As an advisor, there is viability study, advice as well as the necessary residual appraisals of the proposed development Step one; ascertaining the yield % in Preston city centre We will use the Gross development value and makes a Comparative between the 4 buildings as follows. 1. Oblivion bar This is an assets situated in Preston at the edge of the city centre with area of 851.44m sq. Moreover, the building is at the edge of the city centre implying that it is at the main route into and out of the city centre of Preston surrounded by cotton court and hangout harry reloaded which is a mix of residential areas as well as development. The building has four storeys with one storey extension worth £130, 000 with rental value of £650 and rental cost of £550 on a monthly basis. (0blivion bar 2016) 2. Warehouse night club The warehouse night club is close to hangout Harry reloaded and Oblivion bar. The building is located in Church Street Preston city. The building occupies an area square of 1450 psm with car park. The building is a four storey building with a sale worth of £750, 000 and rental cost of £650. Moreover, the building depict a mix of development which entails the commercial business as well as restaurant and accommodation (Warehouse night club 2016) 3. Hangout Harry reloaded Hangout harry reloaded is a property surrounding Oblivion bar and is located along church street near Preston city and church row. The building has an area capacity of 1,510 ft² and 130 sq². Furthermore, warehouse night club is a bar and hotel restaurant with accommodation and rooms available with presence of offices and car pack at the front of the building (Antill 2008). The worth of the building is £165, 000 with a rental value and cost of £ rear £750 and £ 550 respectively. (Hangout Harry reloaded 2016) 4. Cotton court Cotton court is located in Church Street in Preston city, opposite to oblivion bar. The building occupies area square meter of 150psm with car park with two storey building with a sale value of £175, 000 and a monthly rental cost of £575. The advantage of its locality is that the building is situated close to retail business, restaurant as well as commercial centre. (Cotton court 2016) The Yield Oblivion building and warehouse club are the best building in which comparison are made for analysis of yield value (Hooke 2010). The buildings are situated in Preston with oblivion being at the edge of the city centre facing the main route of entering and living the city. Warehouse night club is situated somehow far from the city and close to church row street. The building has a mix of office and residential building. The growing and improve development within the Preston city with achievable alternatives market as well as the number of foreign individuals who either do business or study. This leads to growth in United Kingdom’s level of education and economy by 21%. The total value of rental asset in Preston was 176 with an average rent being 595pcm. The value of the rent in Preston was worth £454 for one bedroom house while % 550 for two bedroom house. While four bedroom house was worth £ 630, four bedroom worth £ 843 and five bedroom being £ 1125. There is an increasing growth in demand for rents due to the fact that there is high demand from the growing population in Preston. As at 2014, the population in Preston was 140,418 with 35000 being student population located UCLAN. The price grew in 2014 amounting to £ 269900 with average price in Preston being £170960 (Hayward 2008). The Market rent of the buildings 1.Monthyl rental cost Oblivion building 2.The monthly rental cost of cotton court Rental cost of £650 per month, hence 12months*650) =£7800 per annum Monthly rental value £575 Value of the property is £130,000 Yearly rental cost of shall be = (£575 pcm x 12 = £6900 Hence yield will be {£7800/£130,000*100) = 6% The property sale vale = £175,000 The year property (YP) shall be {100/6%} = 16.67 Yield = £6900/ £175,000 x 100 = 3.94% While GDV = {market rent x YP @ ARY %} The Year purchase in property (YP) = 100/ 3.94= 25.4 GDV = {£650 pcm x 16.6 x6/100 = £650.01 Hence the GDV = {market rent x YP @ ARY %) GDV = {£575 pcm x25.4x3.94/100 = £575.02 3.The monthly rental cost of Hangout Harry reloaded 4.The monthly rental cost of warehouse Night Club Monthly rental value £750 Monthly rental value £650 Yearly rental cost of shall be = (£750 pcm x 12 = £9000 Yearly rental cost of shall be = (£650 pcm x 12 = £7800 The property sale vale = £165,000 The property sale vale = £750,000 Yield = £9000/ £165,000 x 100 = 5.45% Yield = £7800/ £165,000 x 100 = 4.74% The Year purchase in property (YP) = 100/ 5.45= 18.4 The Year purchase in property (YP) = 100/ 4.72= 21.19 Hence the GDV = {market rent x YP @ ARY %) Hence the GDV = {market rent x YP @ ARY %) GDV = {£750 pcm x18.4 x5.45/100 = £750.22 GDV = {£650 pcm x21.19 x4.72/100 = £650.11 Proposed building The proposed development is the oblivion bar which is located at the edge of Preston city along Church Street and Grimshaw Street. The proposed development depict a mix of development entailing the residential and commercial building with each building depicting at least 2-4 storey with at least 25 studio as well as more than 40 two bedroom flats for guest and student visiting Preston for either business or studying reasons. There are the some of the growth in corporation streets that makes it more advantageous in developing the mix use development with superior products. There are also same properties for residential in cotton court with numerous properties depicting same traits within the same locality in Preston city around the proposed property. The benefit of the proposed locality is that there exist some other beneficial services such as existence of cotton court as well as fonebox Preston bus station that make it facilitate means of transport and residential areas (Isabelle Mateos Y. Lago 2004). Similarities and differences From the above four buildings, it can be observed that both buildings as 2-4 storey as well as they are located with Preston city. Oblivion building is costly since it is a strategic position as well as at the edge of the city and also in terms of the rental value and worth of the building as at 2016 (Baum 2006). With warehouse night club bar being somehow far from the centre followed by hangout harry reloaded. All of the above buildings depict a mix of development that entails the building offices as well as accommodation. Gross development value The value of rent depicts an average value of the market rental value as well as approximated rental value (Meitner 2006). The yield is explained by comparable as well as the gross development value is correct approximation of the entire property worth. When we less the cost of sale, we will be making an assumption that the property will be disposed when the all units to let are exhausted. The net value of the sales is the purchase cost of the property. The cost of purchase is the entire acquisition cost inclusive of stamp duty, tax, the solicitor’s fees as well as the seller’s cost (Oricchio 2012). The average market rent shall be {650 + 750/2} =£700 The approximate gross are is 851.44m sq with 80% of the construction are remaining due to the site area being less than 100% of the entire property. The construction area will therefore be = {20/100 x 851.44m sq} = 170.28 m sq = {851.44m sq *0.8} =– 340 m² = 681.15 m sq Hence the approximated rental value shall be (681.15 m sq*£700psm} =£476806.4 With annual acquisition in perpetuity approximating 6% as well as it is same as 16.67 The gross development value shall therefore be = {£476806.4x 16.67 = £7948363.69 The assumption of deducting the costs of sale is 4.5%, so: 4.5/100 x £7948363.69= £357676.32 Net proceeds of sale therefore shall be = {£7948363.69- £357676.32= £7590687.37 These factors are the main determinant of success to the proposed development. There is a mix of use entailing the retail, the education as well as the growing population. Moreover, the proposed site is close to central bars and restaurant as well as entertainment places such as the warehouse night club and hangout harry reloaded.The building will assume 0.25 of its portion as reception with small car park area for the customers. Calculation of the entire costs of the building 1. Cost of Demolition The developer might need use of section 106 or 278 contract under the town as well as country planning Act 1990. The objectives of employing these Acts is that to have financial control To be reimburse for the enhancement to the society. These acts are the point of reference to planning of the proposed development acceptable as well as it is centered in the proposed site to enhance the society infrastructure fees as well as highway contribution. In our analysis, we will not centre on 106 and 278 Act (Pennacchi 2008). Building costs = 855.41m² x £1, 700 psm = £1454197 The contingencies are assumed to be 0.03 and 0.05. Hence {3/100 x £1454197 = £43625.91 The professional fess is 12% and 13% Hence {12/100 x £1454197 = £17450.4 The gross development costs shall be= {£1454197 + £43625.91+£17150.4} = £1514973.3 The cost of the building place dependence on external area as well as the contingencies is the unplanned cost managed whilst the property is the period under construction. Moreover, the professional fees entail the quantity survey cost, engineering cost e.t.c The cost of demolishing a property in United Kingdom ranges between £6000 and £8000 for a property of 120msq. The cost will be minimized where there is existence of materials with salvage value. The unit cost per square meter of the least schemes for residential property range between 45-100 units with of £1350 to £1700 hence the cost of the building per square meter assumption shall be £855.41 psq 2. Cost of the building The cost building is normally appraised according to price per square meter. It must be taken significantly to guarantee that it appraised as well as comply the standards as well as anticipation of the proposed development. It is significant to approximate precise cost of the building, contingencies as well as professional fees. The cost of building are explained when the contractor is chosen for the contract. The source of information of building is realized from the Spon’s Architects’ and Builders’ Price Book 2015, the Building Cost Information Service (BCIS) as well as quantity surveyors’ approximates. The proposed development will be appraised inclusive of sufficient assumption of contingencies as well as the professional fees. 3. Planning fees Planning fees relies on the nature as well as magnitude of the building that is proposed. In our proposed development, there shall be no planning fees (Pennacchi 2008). This entails the cost of planning as well as scouring intent for the proposed development. The will entail some fees to be reimburse to the local planning governing body. 4. Building regulation fees This on the basis of total cost of the building as well as 0.05 shall be charged on the cost of the competed development. The legal fees is assumed to be 0.01 5. Site investigation costs Residential developments lands must be corrected at the time of land surveying from any expiration to get rid of risk of development. The site investigation cost fees are charges on investigating the site for proposed development as well as land surveying. 5. Funding costs The land may be on mortgage for the financial institution to return the money back from the rental income (Oricchio 2012 ). It is significant to forecast the rate of expenditure by assuming the correct cash flows as well as to depict the reimbursement of cash within the timeframe. Short term finance is important since, sufficient funding will finance the entire project needs. The funding will be sourced from the financial institution as well as it will be reimbursed with interest rate. 6. Banke fees Fees depict the size of finance required which ranges between 3 to 10% of the loan worth. With 5.5% per annum interest rate on property. At the time of construction, fees will be paid worth of 0.75 of the approximated cost with an assumption of three months to get rid on. The bank fees are linked to the development finance plan as well as the developer must reimburse the financial institution that is funding the project. 7. Short term funding The cost of Construction (averaging 0.5) = [50/100 x 5.45/100 x £1454197= 39636.9 Fees (average 75% for building period) = (75/100 x 5.45/100 x £1454197) = £59440.3 Total costs over void period (3 months) = {5.45/100 x 3/12 x £1514973.3} = £20641.4 = {39636.9+ £59440.3+ £20641.4} = £119718.9 Hence {£119718.9+ £1514973.3} = £1634692.01 8. Marketing promotion This is an important factor to the development as well as the cost is expensive due to the fact that the promotion cost on the media channels, hence the assumptions made on the promotion is £255000. The agent fees are assumed to be 10% since they range between 7 and 10% Hence {10/100 x £476806} = £47680.6 Marketing campaign = £255000 £47680.6+ £255000= £302680 Total cost of development = {£302689+ £1634692.01= £1937372.01 9. Developer’s risk and profit This risk depicts the progression of development expenditure. A portion of the total cost of development is the value accounted ranging from 10 to 25%. The levels of the profits as well as risk places dependence on intricacy of the development, the volatility of the results as well the capacity to provide assurance on profitability. Proportion of gross development value ranges between 10 to 25% hence the assumption shall be 10% Hence {10/100 x £1454197} = £145419.7 10. Cost of Lettings Agency fees are an approximation % of the value of rent that is employed in gross development value. The fees are assumed to be 7%. The agency costs are upheld in the letting in the finished project as well as it account for cash for the agent selected. 11. Professional fees The impact of professional fees is that it affects the entire property cost as well as it is a proportion ranging 12-15% from the development cost. Undertaking the right professional fees needed to provide a proportion that can’t impact in the entire cost. It is significant to charge fees for the project cost of inputs as well as the amount of fees based on the size as well as the intricacies of the project (Oricchio 2012 ). Detecting the entire amounts and costs from the GDV and checking the viability of the project Gross Surplus available for site purchase= {9626015- £145419.7= £9480595.3 Present value of 1£ in one year at 10% shall be = 0.9091 Hence {0.9091 x £9480595.3= £8618809.2 Less the site purchase costs at 4.5%, Hence {4.5/100 x £9480595.3= £387846.4 Net existing for site acquisition= {£9480595.3- £387846.4} = £823096.05 Conclusion The proposed development is a viable venture opportunity due to positive net value of £823096.05 which is an implication is that investment in this is area would lead to positive returns. Moreover, the proposed development is at the edge of Preston city which is a strategic place since; it is at the centre of entering and living Preston city. This implies therefore that there are bars, restaurants, universities as well as other important services that serve the population in the proposed development. In this regards, the population requires the residential to be of high quality. It can therefore be concluded that the development is triumphant in Preston due to the fact that many people in Preston are entrepreneurs while others are studying with growth in population each year Reference list Antill, NALK 2008, Company valuation under IFRS, Harriman House, Petersfield. Baum, A,MDANN 2006, The income approach to property valuation, EG Books, London. Hayward, R 2008, Valuation, Estates Gazette, London. Hooke, JC 2010, Security Analysis and Business Valuation, John Wiley & Son;s, New York. Isabelle Mateos Y. Lago, ‎JG‎AC 2004, Evaluation of the Imf's Role in Poverty Reduction Strategy, Jonh Wiley & Soin's , London. Meitner, M 2006, The market approach to comparable company valuation, Physica-Verlag, Heidelberg. Meitner, M 2007, The market approach to comparable company valuation, Physica-Verlag, Heidelberg. Oricchio, G 2012, Private company valuation, Palgrave Macmillan, Hampshire. Oricchio, G 2012 , Private company valuation, Palgrave Macmillan., Houndmills, Basingstoke, Hampshire. Pennacchi, G 2008, Theory of asset pricing. , Pearson/Addison-Wesley, Boston. Shefrin, H 2005, A behavioral approach to asset pricing, Elsevier Academic Press, Amsterdam. Read More