How to prepare a Development Appraisal

Andrew Ryan Development Director

The Trevor Osborne Property Group

What is an Appraisal? Developers consider this to be a Financial Assessment of a project, but the HLF

offer the following definitions: Viability Appraisals A Viability Appraisal is part of the first-round application for the grant development phase of your project. It should: • Consider the various options for a sustainable end-use for your building or site; • Provide an initial broad idea of the costs, values and likely size of the Conservation

Deficit; • Show that the first-round application falls within the scope of the Heritage

Enterprise programme, and the amount of grant applied for is appropriate.

Development Appraisals A Development Appraisal is part of the second-round application for the grant delivery phase of your project. It should: • Identify the proposed end-use for the building or site, and clearly explain why it is

the preferred option; • Provide a fully detailed estimate of construction costs, overheads and developer’s

return; • Clearly identify the market value of the completed development, and hence the

amount of grant actually needed to cover the Conservation Deficit.

The Oxford Castle Heritage Project

The Oxford Castle Heritage Project

Previous use :Gaol New use : Mixed use– Hotel, Residential, Restaurants Listed: Grade I; II*; II Construction Cost: £27m Awards :12 including Project of the Year 2006 (RICS)

Funding Source Contribution £

SEEDA 7,000,000

Oxfordshire County Council 255,000

Heritage Lottery Fund 3,800,000

English Heritage 150,000

Buxton Crescent Hotel and Spa

Buxton Crescent Hotel and Spa

Funding Source Contribution £

Heritage Lottery Fund 23,800,000

Derbyshire County Council 2,000,000

English Heritage 500,000

Local Enterprise Partnership 2,000,000

Previous use : Hotel / Lodging Houses; Council Offices New use : 5 star Hotel and Thermal Spa Listed: Grade I; II Construction Cost: £33m

A financial Development Appraisal

• Consider the Financial Value of your completed scheme – seek professional advice to establish this, particularly if a mixed use development.

• Obtain a Quantity Surveyor’s advice on Construction Costs, making sure you explain all the variables and risks in your scheme so they can be costed.

• Add all your Consultants fees into a list and input these into the Appraisal – do not forget important and possibly costly items – Archaeology; Surveys; Legal Fees for example.

• If borrowing money from a Bank or other Senior Debt Funder on a commercial basis, remember that they charge fees as well, plus you should add the cost of interest during construction….

• If you intend to sell or rent part of your scheme, then Agents fees should be included.

• Once you have calculated all of this you will arrive at the Total Development Cost. If this exceeds your Financial Value (which is possible) then you will be seeking grant funding to bridge the gap.

What is the Conservation Deficit? HLF state the following:

Conservation Deficit. This is where the existing value of a heritage asset plus the cost of bringing it back into use is greater than the value of the asset after development has been completed.

What does this mean for you?

An opportunity to seek Grant through the Heritage Enterprise scheme to “bridge the financial gap” in your project.

Completing the Appraisal

The Development Appraisal draws on other supporting documents:

• Project Timetable / Programme

• Cash Flow Forecast

• Project Costs Spreadsheet

The Cash flow and Appraisal can be interlinked which makes them easier to manage long term.

DEVELOPMENT BUDGET + APPRAISAL

Title Hotel Building, Adjoining Building

CAPITAL VALUE

Hotel Valuation 37,000,000£ Valuation by X Consultant

GROSS DEVELOPMENT VALUE 37,000,000£

HOTEL BUILDING

Property Costs 7,953,532£

Consultants 2,421,410£

Surveys 345,327£

Construction 17,790,074£

Development Costs 667,386£

Pre-opening costs 300,000£

Property Costs 20,136£

TOTAL CONSTRUCTION 29,497,865£

ADJOINING BUILDING

Property Purchase 1,150,000£

Budget for Works 500,000£

TOTAL BUILD COST 31,147,865£

Interest @ 7% 800,000£

TOTAL COST 31,947,865£

TOTAL DEVELOPMENT COSTS 31,947,865£

DEVELOPERS PROFIT 5,052,135£

RETURN ON COST 15.81%

RETURN ON DEVELOPMENT 13.65%

Any Questions?