Urbanise Developer Client Regarding a Potential Development Project Located Near Preston City - Coursework Example

Report to uRBanise developer client, regarding a potential development project which is located near Preston city centre. Introduction Contents Contents 2 1.0Introduction 3 2.0 Site location 3 2.1.1 Current Use 5 2.1.2 below Ground Conditions 5 2.1.2.3 above Ground Conditions 5 3 Proposal 6 4 Office equivalent 6 Step one; ascertaining the yield % in Preston city centre 10 6 Calculate area for the proposed building 11 7 Formula to work out the Gross Development Value 11 8 Rental Analysis 12 9 Total Gross Development Value 13 9.1 Gross Development Cost 13 10 Construction Cost- BCIS 14 10.1 Site Clearance fees 14 10.2 Professional Fees 15 Contingency Allowance 15 10.4 Site Investigation fees 16 10.5 Planning Permission fees 16 10.6 Building Regulations fees 16 10.7 Bank fees and legal fees 16 10.9 Marketing Fees 17 10.10 Letting Agents fee 17 10.11 Site Acquisition Cost to be deducted 17 11 Finance 17 12 Gross Development Cost 18 13 Profit 19 14 Surplus Available to Purchase the Land 19 15 Residual Valuation 20 Antill, NALK 2008, Company valuation under IFRS, Harriman House, Petersfield. 22 1.0 Introduction The report is prepared by Mohammed Al Aziz consultant to UrBaines private property developer. The private developer is having the possibility of venturing in potential site located within Grimshaw street Preston Lancashire PRI 3DD. Preston city council are considering the regeneration in some areas within Preston. The council is keen on guaranteeing on attainment of utmost financial returns, a luxurious view of the project acquired. The report will focus on methodologies in which the sites might be developed so as to aid the fire attains the appropriate expansion as well as return to aid its pension. 2.0 Site location The site under consideration for development is situated in Grimshaw Street Preston, adjacent to the proposed new bus station at the corner of Church Street. The site enclosed by an assortment of shops, food outlet, puns and many retail sites located within the church street. The site is as well as one way street that provides just the access to public services vehicles to Queen Street. Figure 1; Grimshaw Street Preston Lancashire The site is same in shape and depicts a total area 852.92 Square Meters, 01 Square Kilometers 0.079 Hectares, 0.2 Acres, Perimeter 115 Meters and 0.07 miles The calculation that will employ for the proposed development shall be 797 square meter t0 8579 2.1 Site Conditions 1.0 plan strategy in effect SS15:- Manchester Road/Grimshaw Street 2.0 Present use of car park: - SIP Car Parks Limited. 3.0 The Development shall therefore be allowed for the following use; Hotel (C1) Leisure (D1 or D2) Residential (C3) The site is somehow viisble from the farand has two point of entry since the present use for the site is a car park used by the SIP company. 2.1.1 Current Use The site is at present used for a car park that permits car parking for the clients of local business situated within the sites. The surrounding site is the church as well as the opposite site is the residential apartments. 2.1.2 below Ground Conditions From site observation, it can be depicted that there is no apparent signs of problems .nevertheless, the ground requires identification to aid preventing any disturbance when the work resumes. The reality is that the site is a Brownfield site that will grow the threat of likelihood of experiencing grown base problem. The following ate the areas that need to be observing with cautious. past structures Provisions of gas, water, electric and drainage Likelihood of gasses and chemicals 2.1.2.3 above Ground Conditions The likely threat above the ground level might be the following Building within the site area Surrounding of likelihood of rare species Electric cables Weather conditions 3 Proposal The site is situated in an ideal locality of Preston and UrBaines is considering the development of the area. Subsequent to understanding the planning policies within the area and as well undertaking study, I may advice that the office park might be ideal for the project. The site building is roughly 852.92m² converted to 8568sq.m. this is because, UrBaines developer office building might be an ideal to accommodate the area since retail shops within Preston’s is at present on the down as and thus it recommends that in the current development plan of Preston city regeneration plan, individual are considering living within the city since many office building with the right level of lagging employed to ensure that the building energy if effective. 4 Office equivalent In the previous part of the report our firm will identify the environment within Preston Lancashire. Since the site is within the city centre or firm will examine the market for the gross development worth of the anticipated options. The building area of the proposed site is approximated to be 7579sq.m.  = Yield % The rental yield is the main significant factor to take into consideration where a person is intending to acquire an asset as buy or let. In working out the rental yield of any significant BTL assets, will consider the establishment of the property, whether the property is viable in terms of cash generations. There are two main rental yields; the gross yield And the net yield. Gross yield is the yearly income realized from property expressed in percentage of the capital cost. 1. Oblivion public house 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. Period office Building and its relevant basement space and seven car park space. 650 sq (4120ft²) Annual rent; 7800 Yield= {£7800 /400,000} = 0.088 X 100% = 8.8 % 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 1450 m² (4,851ft²) Annual rent; £8800 Yield= {8800 / £450,000} = 0.1 X 100% = 9.9% Yield 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. Self-Contained office premises 1510m² (9,443ft²) Annual rent; £9000 Yield= {£9000 / £1,000,000} = 0.05 X 100% = 6.7 % Yield 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. Purpose Built retail warehouse 150m² (11,322ft²) Annual rent; £6900 Yield= {£6900 / £794,000} = 0.09 X 100% = 8.79% Yield 5. Quigley’s Ribbleton Lane Preston PR1 5DP Retail Warehouse with large car park 1,731m² (18,31ft²) Annual rent; £126400 Yield= {£126400 / £1,500,000} = 0.083 X 100% = 8.278% Yield Step one; ascertaining the yield % in Preston city centre Property Number Yield % 1 8.8% 2 9.9% 3 6.7 % 4 8.79% 5 8.27% The yield above depict that amount of cash that will be realized from rent each is year is in percentage of the cash ventured in the property. The lower the yield percentage, the less cash will be realized unlike the forecasted cash to be realized. Nevertheless, when receiving the high a high rate of yield, it depicts that more cash was ventured in the property. I have considered the properties and concluded that my anticipated building will have the number three options of Bhailok Court, Pole street Preston in Lancaster, this is because, it is same to the anticipated location. For my opinion concerning the steps undertaken, I considered the following factors; Size, Location, Build Quality, Storey height and finally whether the building is modern or an older type of building. The workings significant for the proposed development are 797 Square meters converted to 7579sq.m. 6 Calculate area for the proposed building Net internal Area= {Area of the land detecting the circulation areas* Number of storey} Total Ares= {797m² – (Rayfield, 1993) (26.7%) detecting for the circulation spaces = 797m² – 199.25m²} = 697.8m². Hence. NIA = {597.75m² X 3 Storey} =1,793.25 m² (19,302ft²) 7 Formula to work out the Gross Development Value Gross Development Value (GDV) = {Net Internal Area of the proposed building X Market rent X All} Risk Field (ARY) = {4.7 %( Chosen Building Yield). Market Rent = {Rental Value for the chosen building £48,000/ NIA of the chosen building} Market Rent = £48,000/ 877m² =£53.9m² for the chosen building. Estimation Rental Value (ERV) for the proposed building = {NIA for the proposed building X Rental Value per m²} I will deduct 147m² For Car park Spaces stairways. Hence the ERV for the proposed building shall be {450 m² X £53.9m² £ = £24,242 Capital Value = (ERV / Yield) = £24,242 / (100/5). Capital value = £24,600/ 22. Capital value = £1,250 For my proposed building the capital value is worked out at £1,144 Hence, he GDV shall be = (457m² / £54 (Market Rent) X (100 / Yield which is 6.7%) = GDV = {450 X £54 X 22} GDV =£624550 For the chosen building (Property number 3) 8 Rental Analysis Since there is more than two comparable needed to examine the market? The workings for the yield might be established by the gross development cost (GDV), furthermore, the equation cost to work out the yield is {Cost per annum / Value of the building X 100}. The property used were to let and for sale used with many sorts of commercial estate agency like the HDAK, Eckersley and Morgan Martin. The source of information was scares which make us consider the property within the town centre area of Preston Lancashire close to the proposed development. An assumption on the yield percentage will be established on the above properties. Considering the Preston in yield market, the yield ranging within 4-7% is advice to be the best yield since the risk level in the asset is manageable. Subsequent to analysis of yield for every five buildings within the Preston town, I conclude that the yield rate of 8% is idea; since, in adding the all yield, I get 6.6% and considering the CRBE press release, it depicts that the current rent and monitor of the rental values to be increasing in Q3 2014 by 60% over the quarter. 9 Total Gross Development Value Years Purchase (YP) in Perpetuity = (100 / Yield %) Initial Yield Rate = 8% YP= {100 / 8%} = 13 YP Hence YP in perpetuity X Rental Income = Gross Development Value {12.5 X £613,581] = £7,669,763 Total Gross = {Gross Development Value – 6.7%} Development Value 6.7% shall be deducted since in making use of property appraisal rationale, it depicts that the percentage assumption to be Stamp Duty Land tax at 4% Legal cost at 1%. The cost is normally worked out at 6.7% of the purchase cost Hence, {£7,669,763– 6.7% = £6,098,768. This value might be the capital valuation of the property to be constructed. 9.1 Gross Development Cost The follow subject matter will be covered to calculate the final figure to appraise the Gross development cost. In this regards, it will be inclusive of the Building Cost, Professional Fees, Contingency Allowance, Site Investigation fees, Bankers fee, letting cost and also Finance. 10 Construction Cost- BCIS In employing the BCIS websites to work out the cost approximates of the anticipated development in Grimshaw Street Lancashire 3 Storey Air-Conditioned. Building Estimate Northwest region (92; sample 909) 2Q 2015 (271; forecast) Floor area: - 1350m² X 1546 = £2087100 Employing the Northwest Area region it, we get £2,044,530 Hence, the Work approximation shall be £2,044,530 {GEA X Cost per m2}= approximation of the building cost Hence, = {1350m² X 16}6 = £2087100 10.1 Site Clearance fees I have received some advice from M&M contractors limited that the cost of the [proposed sites shall be as follows. Removal and clearance of site 8678 cubic meters X .2 of a meter = 1716 / 9 = £190 x 180 a ton = £350430 to clear land 8 inches deep. 7-8 inches for crush brick costing £ 32,200 Close tip 10 daily loads at 180 a load {£65,313 ex VAT Add 20% £13063 = £78376 Nevertheless, According to the Spoon’s Architect and builders price book of the financial year 2016, the followun g approximates of appraised work in total is provided as follows. Cost of Demolition{40 x 797m²} £31,9200 Site Clearance costing { £26p X 798m²} £20,748 Total Cost = £52,688 Ex VAT Add 20% VAT = £10,534 Total Included VAT = £63,068 I considered the Spoon’s book price of £64,600 10.2 Professional Fees After a comprehensive analysis of diverse research books, considered an allowance of 13% to be ideal for the proposed development (Baum 2006). I approximated the cost of building to require an allowance for the professional fees in residual valuation Professional fees Percentage Architect 5.9% Quantity Surveyor 4.1% Engineer 2.1% Other Professional inputs 1.1% Total 13.1% Total Figures for the professional fee = (£2087100 – 13%= £1,815,777 Contingency Allowance The contingence allowance is time that is allotted at the planning fir unplanned events that might disrupt project achievability on time. I concluded on making a 6.7% allowance on cost of building to cover the unexpected. Contingency allowance = {Building Cost – 6.7% + {£2087100 – 6.7%}= £1947264 10.4 Site Investigation fees Building Cost – 1% {£2087100 – 1%}}=£2,066,229 10.5 Planning Permission fees The local council concludes in the planning fees needed fir the proposed development. Io will consider make use of the planning portal website to work out the planning fees for the land. The Gross external area and also car parking are inclusive in the fee of planning to be £25,530 GBP 10.6 Building Regulations fees The fee is varying and thus it is advice that the regulation fees be checked with the local authority. I will, use 0.11% of the approximated project cost. This is because, the fees listed in spon price book for the year 2014 page 617 provides that “ for a higher value, project fees are established individually but are roughly 01% of the approximated project cost” {£2087100 – 0.1%}=£2,066,229 10.7 Bank fees and legal fees The cost will be at 1% less from the gross development value. Hence {£6,098,768 – 1%} = £6037780 10.9 Marketing Fees The market fee is estimated to be included in the cost of marketing to create an interest for the provisioned development. This will be important in making the property commercial. In the property Valuation principles by David Isaac and John O’Leary it has an entirely feasibility of the scheme to be compared at (0.5-1.6.7%) of the development value. I consider 1.6.7% Hence {£6,098,768 – 1.6.7%} = £5,996,920 10.10 Letting Agents fee The letting agents are important in the development procedure and thus the fees are normally compared at the range of 10-16.7% of the yearly incomes. Total Rental Income – 16.7% {£513,580.4 – 16.7%}= £427,800 10.11 Site Acquisition Cost to be deducted £265,000 Land Value Taken at 6% of site acquisition price = £15,900 11 Finance I will use the compound interest rates on the basis of the past quarter of the last value. The figures will be justified concerning the cost of business and fees which is divided by two. This will aid in establishing the amount needed to as loan. The methodology is varied in working out the cost of funding. Hence cost of finance will be assumed to be 50% of the cost of finance to be sourced externally for the whole construction time. The interest rate is established by the Bank of Scotland at 0.6.7%. Total construction cost= {2,044,530/2} = £1,022,265 Lending fees 0.6.7% Credit risk at 6% Total amount of 7%. The value is then divided for each quarter to finance rate at 1.8%. The compound interest is A = P (1 + r/n) ^ nt Finance Quarterly Quarter one: - {£1,022,265X 1.8% = £18400 Quarter Two: - £1,040,665 X 1.8% = £18732 Quarter Three: - £1169009 x 1.8% = £21,042 Quarter Four: - £1,191449 x 1.8% = £21446 Total Interest Gained in 1 Year =£79,620 Financed Void Period Quarter Five: - £1,212,895x 1.8% = £21,832 Quarter Six: - £1,233,562 x 1.8% = £22,204 Total Interest Gained in Void Period = £44,036 Finance Total Interest Owed Total Interest Gained 1 Year = £ 79620 + Total Interest Gained in Void Period = £44,036 Total Interest Owed = 123656 There is a void period post finishing point for the building of half year. This will minimize threat and errors. The space to let might be pre-sold or pr-let and thus it is significant to consider the void period since it is not known when the space to let Weill be occupied (Hayward 2008). Nevertheless, the void period will be inclusive of interest realized at the time of construction. This will be a net value to be paid to the financiers of the loan since the bank of England targets an inflation rate of 2%. 12 Gross Development Cost Building Cost £ 2,087,100.00 Professional fees £ 288,650.00 Site Investigation fees £27.500 Contingency Allowance £112,115 Demolition and Site Clearance fees £ 64,545. Planning Fees £ 14,524 Building Regulation fees £2,822 Community Infrastructure Levy (CIL) £3500,200 Banks and Legal fees £ 65,988 Marketing fees £ 91,482 Letting fees £ 78,003.610 Land Acquisition £ 16,300 Finance (Interest Owed) £124,750 Total Gross Development Cost £ 2,375,750.00 13 Profit The profit ranges between 14-24% as per the Douglas Scarlett property valuation: The five methods. Because of intricacies of the development, I considered that a profit of averaged 20% will be ideal for the gross development cost. The setting cost also target for the office space for letting, housing or for sale is connected to the free enterprise economics. Profit = {Total Gross Development Cost – 20%} Profits= {£2,375,750.00 – 20%} = £ 1,900,600.00 14 Surplus Available to Purchase the Land We will work the NPV of £1 which is the amount realized at the end of the specified years. The calculator will appraises the value that need to be ventured in year one to sum £1 at compound interest. Simply input: - Interest rate 7 % Chosen interest Term in years 1.5 Years to build FV = GDV £5,098,768 Present Value (PV) = {FV x [1 / (1+i) x number of years} PV= {0.9435 + 0.935 / 2 = 0.6448 X £3,721,998} = £2,894,168 15 Residual Valuation The residual of the land is the available cash after all needed allowances is deducted. Gross Development Value= £5,098,768 Gross Development Cost £2,375,750 Profit £7,5474,518 Total Residual Valuation £2,215,771 Land Cost £275,000 Total =£2,490.772 The residual value points out the the project is feasible but where the project would be operational, then it would have been appropriate to undertake the sensitivity analysis in order to forecast the results of a verdicts where the situation turns to be diverse u like the key indicators. Conclusion The proposed development is a viable venture opportunity due to positive net value of project feasibility as depicted above 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