Reference no: EM132313914 , Length: word count : 2000

Assessment 2

Using the same site for which you submitted your site analysis, you should prepare a Highest and Best Use analysis for the site. We will scope the content of the HBU as an exercise in class. Your report may be done singly or in pairs and should include text, graphics and statistics and any other information and modes of presentation you consider useful. Before you start make sure you have read the paper on Development Appraisal on the MyUni site.

Also make sure you are very clear about the HBU methodology. If in any doubt please contact me before attempting the exercise. if you work as a pair then make it very clear in the report who has written which sections.

Remember that the reason for using HBU is to rationally demonstrate that the solution you arrive at is the HBU. As such evidence is critical. This may take the form of development plan policy, construction (and demolition) costing evidence, market evidence, for example current rental yields and returns from comparable developments, sales evidence or spreadsheet models of projected costs and income. You should produce a report written as if to a client who wishes to evaluate the potential of the site for redevelopment.

A technical report of this type should have a contents list and an introduction that sets out the aim of the report. Technical detail should be set out in sections with subheadings. In this case the sections should reflect the logic of the HBU methodology. The report should end with conclusions and recommendations. Two critical factors which should be covered in the conclusions are firstly, the potential value of the site if it were to be sold on the open market in its undeveloped state and secondly, the potential final developed value of the site if its full potential is exploited.

The recommendations should advise the client as to their best course of action, which may depend on a range of factors such as the predicted market conditions two to three years from now and the risks involved in carrying out the development as opposed to selling the site now.

Remember the purpose of an HBU is to assure the client that all possible development scenarios have been considered and evaluated and that the course of action recommended is the best possible financial outcome for the client when all factors have been considered. As such it is vital that your analysis is thorough, uses evidence and considers all scenarios.

Assignment 2 - additional notes

Here is a suggested outline for your project. A formal report writing format should be employed (not a letter report as was permitted in Assignment 1)

Executive summary

An executive summary is a ‘stand-alone' section of the report that summarises the key findings and recommendations of the project (1 page). The purpose of an executive summary is to provide a reader with a quick overview of the project and conclusions.

Introduction

Briefly describe the purpose of the project?

Introduce the site (location, legal identifiers, location map, photograph)

Site analysis

Incorporate a condensed version of Assignment 1. Do not include site analysis checklist. Place connection and utility plans in an appendix. (not required)

Conclude this section with a list of ‘possible uses' (HBU - step 1). Brainstorm these.

The location and nature of the site may suggest possible uses. What are these?

Planning analysis

Use the Adelaide City Development Plan to identify the permitted/ preferred land uses and the key quantitative controls for your site. Check heritage listings for adjacent buildings. You should seek to maximise the allowable building space.

Conclude this section with a diagram showing allowable building space. You can do this in 2D by providing a site plan (with building footprint), front elevation, and side elevation. Or in 3D you may be able to incorporate all of these into one drawing (see example in Week 4). Whichever method you use, identify key data - height, setbacks, site coverage (etc)

Conclude this section with a list of ‘permissible uses'. This is normally a reduced list from the site analysis (but it may not be reduced significantly)

Economic context

Describe the broader economic context in which the development will be constructed and sold. To keep the project manageable, focus only on the Australian/ South Australian economic context (omit international). See the course home page (under assessment 2) for an example report on the economic outlook for South Australia.

(See also Module 5 for examples of economic analysis). This section should conclude with an outlook for your project in the wider economic context. Is the project likely to hit economic headwinds, or is it more likely to be smooth sailing?

Market analysis

Market analysis, is not unrelated to economic analysis, but focusses more closely on the local market factors and respective real estate markets and submarkets. What real estate products are in demand? What are the market trends in the area? What are the demographics of the people who live in the area? See the course homepage for market reports. See also Module 5 for examples of market analysis.

Design and costing

The starting point is to take the diagrams from the planning section above. Then calculate floor areas.

You will need to draw to a scale. You can use sketch up or a CAD program. You can draw to scale within Word (but it takes time).

Establish how many storeys you will build. I would always ensure the bottom storey is 4-5 metres high to create a street presence (Check the Adelaide City Development Plan, there may be a requirement. If not, have a look at Toronto Tall Building Guide). Floor to ceiling heights are usually 2.7m to 3.0m but you need to allow spaces between floors (for the floor itself, and infrastructure such as electrical and piping).

Draw a basic internal layout showing internal circulation scheme (ie how are people going to move around this building?). If you are designing a storey for apartments, just draw in an empty box for each apartment (and calculate the area). If you are designing retail spaces on the ground floor, just draw in empty boxes to indicate where you think these might go. Think in the real world, but there is no need to be
detailed.

Calculate floor areas of each storey (these may be the same for each storey, or they may different, if for example, you have a larger area of floor plate for lower storeys in comparison to upper storeys).

Use Rawlinsons Guide to calculate the cost of construction of each floor.

Calculate the subdivision costs (See Module 6)

Calculate or estimate other costs (See Module 6)

See spreadsheet on course page under Assessment 2.

There is no requirement to do detailed design work on the exterior of the building but you may wish to draw in basic structures such as windows etc.

Financial feasibility

Ascertain the capital value for your project. Use comparative analysis to establish the value of apartments (See module 6). Calculate the net lettable areas for retail and commercial uses. You will need these areas to calculate your ‘capital values' for retail and commercial (offices). (See Module 6)Use the spreadsheet provided (include the spreadsheet as an appendix). You may use the spreadsheet in two ways:

Firstly, ignore the cash flow analysis on the right hand side of the spreadsheet and just concentrate on the column on the left hand side (you will need to make some amendments to make this work). You will also need to do some calculation of the cost of interest for the project (which is what the cash-flow analysis does on the right hand side of the spreadsheet).

Secondly, do the cash flow analysis for the project. This is simply about assigning the costs incurred into the timing of the project, and then calculating the interest costs more thoroughly.

You can use either method. The second one will earn you a few more points if you take the time to do it.

Finally, there are a number of development scenarios you could consider. For example, you could employ a ‘hold and rent' strategy, or a sale of units at completion strategy, or a combination of both. The easiest one to do is a complete sale of the finished product because this effectively closes the project off at a particular date and all the numbers flow into the residual calculation and you end up with cash in the
bank. If you do choose a hold strategy, you still need to choose an end date, but rather than just having cash in the bank you will have assets (with assigned value), and an outstanding loan. However (ignoring the loan), which ever way you go you will do a residual calculation as at a particular date in the future. Remember, the assignment criteria requests that you identify the price to pay for the land. Therefore, you will need to use the appropriate residual calculation (See module 6, and the spreadsheet will help )

In a real-world project, Highest and Best Use (Step 3) would likely undertake detailed investigation for a number of proposals for a particular site. This is not possible in a simulated student project such as this. Once you have settled on a proposal you will probably need to stick with this until the end of the project. However, you could play around with a different mix of 2 or 3 bedroom apartments (for example) to ascertain which one delivers the highest return.

Recommendation

This section acts as your conclusion to your project. You will attempt to bring all facets of the three steps together - the site and locality, the Planning, the economic, the market, and financial feasibility into a final recommendation. Taking into consideration all of these factors, what do you recommend for this site? What profit will the project make? What will be the capital value at the conclusion? What do you
recommend your client should pay for the site?

Appendices

Utilities and connection maps.

Detailed spreadsheet calculation.

Attachment:- Assignment Data.rar