The second calculations relate to the justification of paying a slightly higher price for the site than the initial appraisal showed. These calculations assume that the site purchaseprice has not yet been fixedand so will change when variable inputs are changed. The open market appraisals you have produced above will have shown how much you or anyone else can afford to pay for the site. However in order to clinch the deal you will need to pay a slightly higher price for the site, so now you can comment on how you could change the figures to justify paying the higher price. Both sets of sensitivity analysis should be provided, as should analysis of the results. Forward Funding (6%): Examine the possibilities for institutional funding of the commercial portions of your development and comment on the associated issues.

For the purposes of this section there are two sets of calculations to consider. The first is the exploration of the impact of changes to variables which occur once the site has beenpurchased, so putting a fixed site purchase cost into the appraisal, changing a variable and seeing what the impact is on the profitability of the development. Once you have done this you can further examine, and comment upon, the risk of undertaking your development. You may want to “test the appraisal to destruction” so showing figures whereby the development is no longer profitable. For this section only, you may wish to include in the appraisal the interest figure derived in a development cash-flow which is constructed using the same inputs as your sensitised appraisal.

Be careful to differentiate between residential ground rents and commercial ground rents, which are fundamentally different. The ground rent to be calculated will, in effect, only apply to the commercial portions of your development and so will be a “commercial ground rent”. The calculations for this will be shown in class. Sensitivity analysis (10%): No residual appraisal should be undertaken without sensitising the figures to see the result. You should take relevant inputs into the appraisal and change them suitably; you can then show and analyse the answers.

The cash-flow will end in the month of the last sale of a part of the development. Under no circumstances should the cash-flow extend into a period of investment rather than development. [ see the lectures for an understanding of this]. Ground Rent Calculation (12%): You should undertake a calculation to establish what ground rent would be appropriate for your site in the case that the freehold is retained by the vendor, who will grant a [normally 125 year] lease of the site to you. You should amend the ground rent such that it does not adversely impact on the value of the leasehold interest, so possibly giving a lump sum which will need to be paid to the vendor upon the granting of the leasehold interest in addition to the annual ground rent.

Be careful not to confuse the Development Cash-flow with Investment DCF Cash-flows which are conceptually different. If you follow instructions found in a text book for Investment DCF Cash-flows, you will not obtain an answer which is meaningful for the context of the Development Cash-flow. Ensure that in the Development Cash-flow you calculate the interest figure each month. Do not take the interest figure used in the appraisal and divide it by the number of months in the cash-flow and use the resulting figure as the monthly interest cost; the figure used in the appraisal is intended to be a rough figure and that derived in the cash-flow is much more accurate.

Development Cash-flow (30%): A month by month cash-flow (on an open market basis) showing the various payments to be made in connection with carrying out the development together with a calculation of notional interest on cost, also on a monthly basis. Your cash-flow will include (as a negative or the cash-flow will not work) the sale of the development either as a whole or in parts, as is appropriate; if it is the intention to retain the property or any part thereof, then the value thereof should still be included as a notional sale on an appropriate date. The cash flow will include the site purchase (including costs of purchase) as a cost as derived in the second appraisal. The figure derived in the cash-flow is the development profit. You should now compare the development profit derived in the cash-flow with that calculated in the second development appraisal – the figures should be different. The difference will equal the difference between the interest figure in the second appraisal and that in the cashflow. If the differences are not equal, then there is an error in the mathematics of the cash-flow. The format of cash-flow will also be given in the Computer-lab session.

You should work on the basis that it is much better to have a relatively small number of relevant comparables which have been well analysed than to have long lists of possible comparables which have not been analysed. The analysis of the comparables should be explained in as much detail as possible. Marks will primarily be given for the analysis and relevance of comparables. Appraisal (10%): You should now amend your development appraisal and present it again (also on an open market basis) based upon the comparables and other information you have gained while doing Coursework 2 but ensure that you do not use the interest figure derived from the development cash-flow as your interest cost in the appraisal. It may be that there is only a small change in the figures but in any event you should explain where the figures have been derived and their fit with the comparables, and why the site value in this second appraisal is different from that derived in the appraisal in Coursework 1. This appraisal will again derive what you can afford to pay for the site.

Comparables (16%): Comparables and their analysis are a crucial part of development appraisal. They should be researched in as much detail as you can find, and analysed/adjusted to be appropriate to your development. Comparables should be found and analysed for each planning use and any ancillary uses in your development. Make sure that the comparables quoted really are appropriate to your development and in the analysis, show how they relate to your development and how you have used them. It is accepted that sometimes you may be unable to find comparables from properties which are exactly the same as your proposed development and in this case you should demonstrate the skill of being able to not only interpret comparables but also to adjust them to fit with your development. Do not worry at all if your research into comparables proves that the figures used in Coursework 1 were incorrect, but do ensure that you explain why the figures have changed.

File saved as "Final DFF CW1" is a reference to do 2nd coursework. File saved as "DFF Coursework 2" is to be done by taking required information from coursework one. Note: Coursework-One financial statement is not perfect. Please make necessary changes to deliver a good result to coursework-2. This part of the coursework carries 35% of the module marks. Marks for Coursework 2 will be allocated in accordance with the following breakdown (also adding up to 100% of the total mark for this part): Risk (8%): Now that you have researched the proposed development further, you should comment again on matters of risk. You will want to extend this based upon the sensitivity analysis you carry out.