Construction project management

Assessment 1-Case Study

Your client has sought your detailed report based advices regarding a figure that may realistically be bid for a development site which is currently being marketed. You may select an appropriate development site from the availability schedule of South Wales commercial property agents. You may wish to seek planning guidance or alternatively make sensible assumptions regarding planning use, site coverage/density/height as well as the appropriate quality and nature of envisaged construction of the planned development with associated justification and commentary in each instance.

Using the residual method of valuation methodology, set out your detailed residual site valuation including careful annotation and associated explanatory commentary on each itemised component element of your computation. Please highlight the potential elasticity potential in each case drawing the client's attention in your conclusions and recommendations to all potential pitfalls as well as corresponding upsides by way of a sensitivity analysis exercise.

Briefing Document

Please note that this is a document designed to offer some suggested guidance with regards to the above-mentioned assignment. It is not a mandatory template but rather comprises a series of ‘best practice' and suggestions which you may wish to adopt in part, but of course preferably, adapt as you feel fit. There are however a number of sentences that should be incorporated as a matter of course to accord with professional body {RICS} rules and regulations and these will be highlighted.

Much of your future professional careers will be taken up with the preparation of advisory/consultancy reports. This assignment, apart from testing your understanding of principles taught as part of the module, also seeks to get you to adopt best practice report writing. Your clients will be paying you significant sums of money to impart quality advice in a succinct, readable, and readily understandable format.

Sadly, as your module leader I cannot reimburse you financially, but I can award marks. Please treat me as though I were a highly regarded client with a regular pipeline of valued instructions.

The word count of 2,000 words is quite tight. It offers little latitude for unnecessary wordy paragraphs. With this in mind make every effort to export supplemental material to an appendix. The appendix content will not count towards the target word count.

As a starting point please read, and then re-read the brief. Within there are key words and you should seek to underscore these and use this document as a constant aide memoire of that which you are hoping to achieve. For example I think that you can reasonably infer that the word ‘realistically' in line 2 suggests quite clearly that your ultimate conclusions as to level of offer needs to take account of matters such as ‘state of the market', [perhaps a brief SWOT analysis],level of likely competition for the site and so on. It suggests that the bid should be pitched at a level that is neither too conservative nor excessively optimistic.

Your next preparatory staging post is to select an appropriate development site. ‘Appropriate' assumes that it will neither be a postage-stamp sized development site but neither should it be an enormous site of sub regional significance. It should be sufficiently large to accommodate a hypothetical development that is substantial but not enormous. As a rule of thumb no less than 0.5 acres [to convert to hectares divide by 2.471] and no larger than 4/5 acres.

Most of the international recognised commercial property consultancies have a presence in either Cardiff or Bristol. Whilst I am not prescriptive as to the chosen site location you might want to select a site here in Wales which you can more readily identify with but I will have no objection should you select a geographical location elsewhere in the UK. However, selecting a site outside Wales, England and Scotland should be avoided as it throws up planning and other valuation issues that could be problematic. The above mentioned firms of Surveyors/Property consultancies will be the source of your selected sites and lists are available on the internet.

Each company will have its own website format but most if not, all will have a tab for properties available for sale, and crucially a sub tab for development sites. There will be some core information on the agents' sales particulars. Please include a copy of this document in your appendix. Frequently

the agents will include some basic information regarding likely planning consents that may be forthcoming as well as a price guide.

Two government health warnings here. Firstly, always bear in mind that selling agents are instructed to achieve the highest possible price for their client, the vendors. Whilst all agents are bound by the Misrepresentation Act 1969 and cannot make false/misleading or fraudulent claims regarding the properties which they market, nevertheless they are often prone to over optimism in their statements and cover themselves by declaring that purchasers should make their own enquiries upon issues like planning and use zoning. Whilst I am clearly not expecting you to carry out formal searches of the Planning Authority Registers[although this does not preclude the diligent student from referencing the relevant Local Plan] I would be looking for some explanation as to why you have made certain assumptions on development site use.

Secondly agents will clearly want to steer purchasers to as high an offer figure as possible. Phrases such as ‘Offers in the region of x'; Offers in excess of y' are commonplace; Whilst this may give you a steer it could just as easily mislead you. Ultimately I would wish to see your figure arrived at by your own independent analysis using the residual valuation skills that[hopefully] you have garnered on this module.
Planning is of course more than just about land use designation. It regulates issues such as site density, site coverage, density, height of buildings, design parameters, car parking provision etc. Whilst I am not expecting war and peace on this front, I would expect some well-reasoned commentary regarding your assumptions upon such matters.

Once you have selected your site and established the most likely optimum development and whilst I am more than happy to entertain mixed use developments you might want to make your lives simpler by restricting to one or two uses only. e.g. residential/retail; or retail/offices etc.

There are a few other things that you will need to research before you can launch into preparing your residual valuation [please see handout worked examples for template -pages 93-95 extract from Property Development[Reed and Sims].The residual valuation will be included in your appendix. For ease of reference to sections/figures within the valuation you may wish to include annotations.
You will need to ascertain the Estimated Rental Values. No detailed rental comparable required here. Just reference to broad parameters by way of £x per sq. ft/sq. m.

Remember that Net Lettable Area for Gross Development Value calculation is different from Gross External Area for Building Costs. You may adopt the % figures for professional fees as per the handout although try and avoid slavish replication. But clearly other costs, including crucially finance costs, I would expect some explanation/justification.

Try and select a freehold site[most development sites are offered freehold] as this will make the capitalisation process easier for you and will not require your accessing valuation tables. Thus, if your discount rate/capitalisation rate is 8% then 100/8 provides a YP multiplier of 12.5 for example. Some commentary on your adopted rate welcomed.

As far as building costs are concerned you may use printed quarterly schedules [e.g. Spons] or other as appropriate. Please specify your source.

You have been asked to provide commentary on the elasticity of the project and a sensitivity analysis. The client [i.e. Moi] is therefore expecting your thoughts on upsides and downsides highlighting the more likely risk items based on your sensitivity analysis. What if interest rates go up by say 2% or 5% or 8%? What if build costs increase by 10% or 15% for example?

Moving on to layout or format of your report. I shall not be unduly prescriptive here to allow for individual creativity and also recognising that most surveying have their own bespoke report format.

Notwithstanding this I think many of you would find it useful to have a broad template with which to work with so that there as few omissions as possible.

Your assignment therefore adopts a formal report format. As it is not a formal valuation that you would be preparing herein, which would otherwise have to be in the prescribed RICS Valuation guidelines format [The Red Book] , this does provide you with some latitude. Your report is required in order to assist your client in pitching his offer for the site at the most appropriate level-essentially a brokerage/agency function but incorporating .nevertheless accepted valuation guidelines [which incorporate International Valuation Standards]
So mandatory wording for you all, probably included under ‘The Brief' heading below.

"This is not a formal valuation. Whilst it incorporates the guidelines/procedures as set out in the RICS Valuation Professional Standards the report has not been prepared by an RICS Registered Valuer but rather produced for brokerage/agency purposes".

And so to suggested sections and headings. For ease of reference number your paragraphs. Name and address of fictional client
Nature of the Instruction/Brief/Purpose of report. Please do not regurgitate all of my lengthy assessment cover sheet content [for padding purposes!!]Just reference that document in one sentence.
Valuation date.

Extent of investigations. Information sources relied upon. Assumptions made schedule briefly. Who are you? Identify yourself as the appointed surveyor. One sentence to include qualifications.

Property under consideration. Address inc. post code. A brief sentence or two on location and situation.
Site area-acres and hectares. Comment on potential site coverage

Site details-configuration. Access to highway. Adjoining sites/buildings. Contamination issues. Buildings requiring demolition? Potential flooding? Any other limitation factors.

Services-electricity/gas, communications, surface water/foul drainage Legal title-tenure. Usually freehold and available with vacant possession. Town and Country Planning-outline current/assumed planning
Nature of proposed development. Floor areas.

Commentary on Building Costs adopted including all items as scheduled in supplied handout [pp93- 95 Reed and Sims-Property Development]
Commentary on Gross Development Value

Sensitivity Analysis. Commentary-risks relating to the property. Perhaps but not necessarily including some of the following:-Location, Site condition, Sustainability issues, Planning, Rental value market fluctuations, Capital value market fluctuations, wider market and property market risks. Plus any others that you may consider relevant.

Conclusions and recommendations. Conclude this section with your reported figure/or a range which you may or may not consider more appropriate.

Attachment:- Financial Management.rar