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Commercial Real Estate Development Appraisal, Lecture notes of Finance

A detailed analysis of the financial aspects of a commercial real estate development project. It includes information on rental income, development costs, purchaser's costs, agent's fees, legal fees, interest on finance, and profit. The project involves the development of industrial, retail, and student housing spaces in different areas.

Typology: Lecture notes

2021/2022

Uploaded on 09/27/2022

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DEVELOPMENT APPRAISAL
Commercial Development
Use class: INDUSTRIAL
DEVELOPMENT VALUE
Rental Income Area £ psf £ per annum
Rent - area 1 15,000 8.00 120,000
Rent - area 2 - -
Rent - area 3 - -
Total rental income 15,000 120,000
Rent free/voids (years) 2 0.8573
Total revenue, capitalised (including all costs) 8.00% 1,286,008
GROSS DEVELOPMENT VALUE 1,286,008
Purchaser's costs 5.75% 73,945 1,212,063
DEVELOPMENT COSTS
Development Costs
Demolition costs £5 psf 7,500 sqt 37,500
Building costs £65 psf 1,083,333
Area 16,667
90% grs to net
External works 15.00% 162,500
Professional fees 10.00% 128,333
Contingeny 5.00% 70,583
Section 106 costs 1 - 0.00% CIL amount RLV
Disposal Costs 1
£0
-£802,602
Letting Agent's fee (% of rent ) 10.00% 12,000 2 £20 -£820,345
Agent's fees (on capital value) 1.00% 12,860 3 £30 -£829,217
Legal fees (% of capital value) 0.75% 9,645 4 £40 -£838,089
5£50 -£846,961
Interest on Finance 6£60 -£855,832
Total development duration 18 months 7 £70 -£864,704
Loan arrangement fee 1.00% 14,823 8 £80 -£873,576
Interest on Construction Costs 18 months 6.50% 72,260 9 £90 -£882,448
. 10 £100 -£891,320
Profit 11 £130 -£917,935
Developer's profit on cost 20.00% 320,767 12 £160 -£944,551
13 £190 -£971,166
14 £220 -£997,782
TOTAL DEVELOPMENT COSTS 1,924,605 15 £250 -£1,024,397
16 £280 -£1,051,013
LAND VALUE
Land surplus (712,542)
Stamp duty 4.00% 28,502
Agent's fees 1.25% 8,907
Legal fees 0.50% 3,563
Interest on land finance 24 months 6.50% 87,304
RESIDUAL LAND VALUE ( 584,267)
Existing use value
Existing space as percentage of new 50% 7,500
Rent per sq ft £3 psf
Rental income per annum 22,500
Rent free/voids (years) 3.0 0.7722
Total revenue, capitalised (including all costs) 9.00% 193,046
Refurbishment costs £ psf -
Fees 7% -
Purchaser's costs 5.75% 11,100
Existing use value 181,946
EUV including Landowner premium 20% 218,335
Surplus available to fund CIL (802,602)
Industrial: RLV less EUV
-£1.20 -£1.00 -£0.80 -£0.60 -£0.40 -£0.20 £0.00
£0
£20
£30
£40
£50
£60
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£100
£130
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£190
£220
£250
£280
Millions
CIL amount per sqm
Residual Value net of Existing Use Value
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DEVELOPMENT APPRAISAL

Commercial Development Use class:^ INDUSTRIAL

DEVELOPMENT VALUE

Rental Income Area £ psf £ per annum Rent - area 1 15,000 8.00 120, Rent - area 2 - - Rent - area 3 - - Total rental income 15,000 120,

Rent free/voids (years) 2 0. Total revenue, capitalised (including all costs) 8.00% 1,286,

GROSS DEVELOPMENT VALUE 1,286,

Purchaser's costs 5.75% 73,945 1,212,

DEVELOPMENT COSTS

Development Costs Demolition costs £5 psf 7,500 sqt 37, Building costs £65 psf 1,083, Area 16,667 90% grs to net External works 15.00% 162, Professional fees 10.00% 128, Contingeny 5.00% 70, Section 106 costs 1 - 0.00% CIL amount^ RLV

Disposal Costs 1 £0 -£802,

Letting Agent's fee (% of rent ) 10.00% 12,000 2 £20 -£820, Agent's fees (on capital value) 1.00% 12,860 3 £30 -£829, Legal fees (% of capital value) 0.75% 9,645 4 £40 -£838, 5 £50 -£846, Interest on Finance 6 £60^ -£855, Total development duration 18 months 7 £70 -£864, Loan arrangement fee 1.00% 14,823 8 £80 -£873, Interest on Construction Costs 18 months 6.50% 72,260 9 £90 -£882,

. 10 £100 -£891, Profit 11 £130^ -£917, Developer's profit on cost 20.00% 320,767 12 £160 -£944, 13 £190 -£971, 14 £220 -£997, TOTAL DEVELOPMENT COSTS 1,924,605 15 £250 -£1,024, 16 £280^ -£1,051,

LAND VALUE

Land surplus (712,542) Stamp duty 4.00% 28, Agent's fees 1.25% 8, Legal fees 0.50% 3, Interest on land finance 24 months 6.50% 87,

RESIDUAL LAND VALUE (584,267)

Existing use value Existing space as percentage of new 50% 7, Rent per sq ft £3 psf Rental income per annum 22,

Rent free/voids (years) 3.0 0. Total revenue, capitalised (including all costs) 9.00% 193,

Refurbishment costs £ psf - Fees 7% -

Purchaser's costs 5.75% 11,

Existing use value 181,

EUV including Landowner premium 20% 218,

Surplus available to fund CIL (802,602)

Industrial: RLV less EUV

-£1.20 -£1.00 -£0.80 -£0.60 -£0.40 -£0.20 £0.

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DEVELOPMENT APPRAISAL

Commercial Development Use class:^ OFFICES

DEVELOPMENT VALUE

Rental Income Area £ psf £ per annum Rent - area 1 10,000 21.00 210, Rent - area 2 - - Rent - area 3 - - Total rental income 10,000 210,

Rent free/voids (years) 2 0. Total revenue, capitalised (including all costs) 7.00% 2,620,

GROSS DEVELOPMENT VALUE 2,620,

Purchaser's costs 5.75% 150,668 2,469,

DEVELOPMENT COSTS

Development Costs Demolition costs £5 psf 5,000 sqt 25, Building costs £141 psf 1,658, Area 11,765 85% grs to net External works 15.00% 248, Professional fees 10.00% 193, Contingency 5.00% 106, Section 106 costs 1 - 0.00% CIL amount^ RLV

Disposal Costs 1 £0 -£821,

Letting Agent's fee (% of rent ) 10.00% 21,000 2 £20 -£834, Agent's fees (on capital value) 1.00% 26,203 3 £30 -£841, Legal fees (% of capital value) 0.75% 19,652 4 £40 -£848, 5 £50 -£854, Interest on Finance 6 £60^ -£861, Total development duration 18 months 7 £70 -£867, Loan arrangement fee 1.00% 22,322 8 £80 -£874, Interest on Construction Costs 18 months 6.50% 108,820 9 £90 -£880,

. 10 £100 -£887, Profit 11 £130^ -£906, Developer's profit on cost 20.00% 486,039 12 £160 -£926, 13 £190 -£946, 14 £220 -£965, TOTAL DEVELOPMENT COSTS 2,916,237 15 £250 -£985, 16 £280^ -£1,005,

LAND VALUE

Land surplus (446,589) Stamp duty 4.00% 17, Agent's fees 1.25% 5, Legal fees 0.50% 2, Interest on land finance 24 months 6.50% 54,

RESIDUAL LAND VALUE (366,192)

Existing use value Existing space as percentage of new 50% 5, Rent per sq ft £10 psf Rental income per annum 50,

Rent free/voids (years) 3.0 0. Total revenue, capitalised (including all costs) 7.50% 536,

Refurbishment costs £25 psf 125, Fees 7% 8,

Purchaser's costs 5.75% 23,

Existing use value 379,

EUV including Landowner premium 20% 455,

Surplus available to fund CIL (821,861)

Offices: RLV less EUV

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DEVELOPMENT APPRAISAL

Commercial Development Use class:^ RETAIL (SM)

DEVELOPMENT VALUE

Rental Income Area £ psf £ per annum Rent - area 1 30,000 18.00 540, Rent - area 2 - - Rent - area 3 - - Total rental income 30,000 540,

Rent free/voids (years) 2 0. Total revenue, capitalised (including all costs) 6.00% 8,009,

GROSS DEVELOPMENT VALUE 8,009,

Purchaser's costs 5.75% 460,573 7,549,

DEVELOPMENT COSTS

Development Costs Demolition costs £5 psf 15,000 sqt 75, Building costs £90 psf 3,000, Area 33,333 90% grs to net External works 15.00% 450, Professional fees 10.00% 352, Contingency 5.00% 193, Section 106 costs 16 476,898 8.62% CIL amount^ RLV

Disposal Costs 1 £0 £233,

Letting Agent's fee (% of rent ) 10.00% 54,000 2 £20 £197, Agent's fees (on capital value) 1.00% 80,100 3 £30 £180, Legal fees (% of capital value) 0.75% 60,075 4 £40 £162, 5 £50 £144, Interest on Finance 6 £60^ £126, Total development duration 24 months 7 £70 £109, Loan arrangement fee 1.00% 45,483 8 £80 £91, Interest on Construction Costs 18 months 6.50% 221,728 9 £90 £73,

. 10 £100 £55, Profit 11 £130^ £2, Developer's profit on cost 20.00% 1,001,932 12 £160 -£50, 13 £190 -£103, 14 £220 -£157, TOTAL DEVELOPMENT COSTS 6,011,591 15 £250 -£210, 16 £280^ -£263,

LAND VALUE

Land surplus 1,537, Stamp duty 4.00% (61,512) Agent's fees 1.25% (19,223) Legal fees 0.50% (7,689) Interest on land finance 24 months 6.50% (188,419)

RESIDUAL LAND VALUE 1,260,

Existing use value Existing space as percentage of new 50% 15, Rent per sq ft £10 psf Rental income per annum 150,

Rent free/voids (years) 3.0 0. Total revenue, capitalised (including all costs) 7.00% 1,749,

Refurbishment costs £25 psf 375, Fees 7% 26,

Purchaser's costs 5.75% 77,

Existing use value 1,270,

EUV including Landowner premium 20% 1,524,

Surplus available to fund CIL (263,581)

Supermarket: RLV less EUV

-£0.30 -£0.20 -£0.10 £0.00 £0.10 £0.20 £0.

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DEVELOPMENT APPRAISAL

Commercial Development Use class:^ RETAIL (HS)

DEVELOPMENT VALUE

Rental Income Area £ psf £ per annum Rent - area 1 4,000 20.00 80, Rent - area 2 - - Rent - area 3 - - Total rental income 4,000 80,

Rent free/voids (years) 2 0. Total revenue, capitalised (including all costs) 7.00% 998,

GROSS DEVELOPMENT VALUE 998,

Purchaser's costs 5.75% 57,397 940,

DEVELOPMENT COSTS

Development Costs Demolition costs £5 psf 2,000 sqt 10, Building costs £101 psf 475, Area 4,706 85% grs to net External works 15.00% 71, Professional fees 10.00% 55, Contingency 5.00% 30, Section 106 costs 16 70,387 8.12% CIL amount^ RLV

Disposal Costs 1 £0 -£87,

Letting Agent's fee (% of rent ) 10.00% 8,000 2 £20 -£92, Agent's fees (on capital value) 1.00% 9,982 3 £30 -£95, Legal fees (% of capital value) 0.75% 7,487 4 £40 -£97, 5 £50 -£100, Interest on Finance 6 £60^ -£102, Total development duration 18 months 7 £70 -£105, Loan arrangement fee 1.00% 7,132 8 £80 -£108, Interest on Construction Costs 18 months 6.50% 34,771 9 £90 -£110,

. 10 £100 -£113, Profit 11 £130^ -£121, Developer's profit on cost 20.00% 156,123 12 £160 -£129, 13 £190 -£137, 14 £220 -£144, TOTAL DEVELOPMENT COSTS 936,739 15 £250 -£152, 16 £280^ -£160,

LAND VALUE

Land surplus 4, Stamp duty 4.00% (163) Agent's fees 1.25% (51) Legal fees 0.50% (20) Interest on land finance 24 months 6.50% (500)

RESIDUAL LAND VALUE 3,

Existing use value Existing space as percentage of new 50% 2, Rent per sq ft £10 psf Rental income per annum 20,

Rent free/voids (years) 3.0 0. Total revenue, capitalised (including all costs) 8.00% 198,

Refurbishment costs £25 psf 50, Fees 7% 3,

Purchaser's costs 5.75% 8,

Existing use value 136,

EUV including Landowner premium 20% 163,

Surplus available to fund CIL (160,603)

High Street Retail: RLV less EUV

-£0.18 -£0.16 -£0.14 -£0.12 -£0.10 -£0.08 -£0.06 -£0.04 -£0.02 £0.

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Residual Value net of Existing Use Value

DEVELOPMENT APPRAISAL

Finsbury Park area

Commercial Development Use class:^ STUDENT HSG

DEVELOPMENT VALUE Term rent^ £179 per week

Vacation rent £230 per week

Rental Income

Annual rent per unit - term time (95% occupancy) 42 weeks 98% occupancy^ 87,710 3,683,

Annual rent per unit - summer (50% occupancy) 10 weeks 50% occupancy^ 57,500 575,

Operating costs 500 units £2100 per unit (1,050,000)

Net annual rents 3,208,

Total revenue, capitalised (including all costs) 6.25% 51,341,

GROSS DEVELOPMENT VALUE 51,341,

DEVELOPMENT COSTS

Development Costs

Demolition costs £10 psf 49,875 sqt 498,

Building costs £160.00 psf 22,800,

Area per unit (incl common areas) 285 sqft pu 142,

External works 10.00% 2,280,

Professional fees 10.00% 2,557,

Disposal Costs

Letting Agent's fee (% of rent ) 0.00% -

Agent's fees (on capital value) 1.00% 513,

Legal fees (% of capital value) 0.75% 385,

Interest on Finance

Total development duration 24 months

Loan arrangement fee 1.00% 281,

Interest on Construction Costs 24 months 6.50% 1,828,

Profit

Developer's profit on total revenue 20.00% 10,268,

TOTAL DEVELOPMENT COSTS 41,413,

LAND VALUE

Land surplus 9,927,

Stamp duty 4.00% (397,102)

Agent's fees 1.25% (124,094)

Legal fees 0.50% (49,638)

Interest on land finance 24 months 6.50% (1,216,374)

RESIDUAL LAND VALUE 8,140,

Existing use value

Existing space as % of new 35% 49,

Rent per sq ft £12.00 psf

Rental income per annum 598,

Rent free/voids (years) 3.0 0.

Total revenue, capitalised (including all costs) 8.00% 5,938,

Refurbishment costs £50 psf 2,493,

Fees 7% 174,

Purchaser's costs 5.75% 188,

Existing use value 3,082,

EUV including Landowner premium 20% 3,698,

Residual Land Value less EUV plus premium 4,441,

Per sqm (net additional floorspace) 516

DEVELOPMENT APPRAISAL

Central Haringey area

Commercial Development Use class:^ STUDENT HSG

DEVELOPMENT VALUE Term rent^ £169 per week

Vacation rent £230 per week

Rental Income

Annual rent per unit - term time (95% occupancy) 42 weeks 98% occupancy^ 82,810 3,478,

Annual rent per unit - summer (50% occupancy) 10 weeks 50% occupancy^ 57,500 575,

Operating costs 500 units £2100 per unit (1,050,000)

Net annual rents 3,003,

Total revenue, capitalised (including all costs) 6.25% 48,048,

GROSS DEVELOPMENT VALUE 48,048,

DEVELOPMENT COSTS

Development Costs

Demolition costs £10 psf 49,875 sqt 498,

Building costs £160.00 psf 22,800,

Area per unit (incl common areas) 285 sqft pu 142,

External works 10.00% 2,280,

Professional fees 10.00% 2,557,

Disposal Costs

Letting Agent's fee (% of rent ) 0.00% -

Agent's fees (on capital value) 1.00% 480,

Legal fees (% of capital value) 0.75% 360,

Interest on Finance

Total development duration 24 months

Loan arrangement fee 1.00% 281,

Interest on Construction Costs 24 months 6.50% 1,828,

Profit

Developer's profit on total revenue 20.00% 9,609,

TOTAL DEVELOPMENT COSTS 40,697,

LAND VALUE

Land surplus 7,350,

Stamp duty 4.00% (294,038)

Agent's fees 1.25% (91,887)

Legal fees 0.50% (36,755)

Interest on land finance 24 months 6.50% (900,674)

RESIDUAL LAND VALUE 6,027,

Existing use value

Existing space as % of new 35% 49,

Rent per sq ft £12.00 psf

Rental income per annum 598,

Rent free/voids (years) 3.0 0.

Total revenue, capitalised (including all costs) 8.00% 5,938,

Refurbishment costs £50 psf 2,493,

Fees 7% 174,

Purchaser's costs 5.75% 188,

Existing use value 3,082,

EUV including Landowner premium 20% 3,698,

Residual Land Value less EUV plus premium 2,328,

Per sqm (net additional floorspace) 271