Planning and Development Module Development Appraisal

TASK :
A new block of 20 flats is to be built on the junction of Chestnut Avenue and Holly Close. The size will be 80M2 per flat, and there will be 160M2 common areas. The development will also include two shops on the ground floor comprising 100M2 and 70M2 respectively. The construction cost will be ?1,000/M2, to include all infrastructure. It is projected that the flats will sell for ?109,000 each, however the market in the town is static, and declining in some sectors. As a Section 106 agreement 10% of the flats are to be retained in the rented sector, and the social rent for these will be ?4800 per annum. The shops will be pre-let on five year FRI leases and then sold once the development is completed to an investor. The developer entered into an agreement with the vendor of the land at a price of ?100,000, to be paid at the end of the development period, or one year after the contract was entered into, whichever occurred sooner, with a penalty of ?1,000 per month if the land payment is not made on time.

During the course of the development, local businessman Mr Rascal discovered evidence of bats on the site, and the Local Authority served a Stop Notice, after month 6. This delayed work for 2 months whilst tests were undertaken, and it was later revealed that an unlawful act had been undertaken to remove the bats, and a fine was imposed on the developer of ?10,000.

The flats were finally offered for sale 3 months late, but, due to the credit crunch, it was difficult to obtain mortgages, and they were sold as follows:

6 sold in month 16 for ?99,000
6 sold in month 17 for ?97,000
6 sold in month 18 for ?95,000

The social rented units were sold to a housing association in month 19 for ?120,000 for the 2 units but just before completion there was a serious leak in one of the flats and the housing association sought to delay completion by one month and seek a reduction of ?10,000.

Making any reasonable assumptions (properly qualified), appraise the development, assuming that the finance was cash flow/ draw-down at 1/2 % per month, and fees on sale of the flats is 5%, and 5% on the sum paid for the land.

Identify the profit or loss and provide a report that states at the practical approaches that could be made to improve the overall situation. Your client has also asked how the risk factors can be monitored and reduced where necessary

present the Appraisal in the form of an Excel Spreadsheet properly laid out with an accompanying report which addresses issues as the development proceeds.

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