APRO708 Development Finance and Funding 2017 Coursework initial work; Individual You should identify a real site in England and Wales (Scotland has a different legal system which makes the development process more complicated) (and preferably in London), identified by address, of a minimum land area (not the sum of the floor areas of an existing building on the site) of 1 acre (43,560 square feet) for which, acting as a property development company, you will put forward proposals to acquire and develop. The site will not be one, which you (or to your knowledge anyone else in the class) have used in connection with any other module: if it is, then your work will not be accepted. It is preferable if no-one else in the class is also using your site but if the same site is found to be used by two or more students, so long as they present different development proposals the work will be accepted. Your site does not have to be currently on the market for sale and can contain existing buildings, which you can assume will be cleared away. The site should be capable of being developed, if it is not already developed, so should not, for instance, comprise part of a green belt or a garden square. The site should front directly onto a road which is publicly maintained and should not rely upon access rights over any third party land. Having identified your proposed site, you should investigate the broad planning position and develop a strategy for developing the site. Your development should contain at least three planning user classes, which are to be submitted, with the site address, to the module leader by email, before 11th February 2017, for approval. No proposed planning use at your site should occupy less than 12% of the net floor area of the whole development. You should draw up a rough plan of the proposed development with an indication of the intended number of floors, showing how it relates to its surroundings. Note that houses and flats are both considered for the above purpose to be in the same planning user. Social housing is not regarded as a different planning user from open market housing. Student housing is a different use. Your development should not include any elements, which you propose will be operated as a going concern by the developer. Nursing home and private hospital uses should be avoided. You need to choose uses for which you will be able to find comparable evidence of rental values for use in your appraisals. Please note that more obscure uses such as doctor’s surgeries, nurseries, public houses, sports and fitness clubs and educational establishments may prove very difficult to value, so might be best avoided. Ground rents and parking spaces will not be permitted as main user classes. Hotels should ideally be valued without recourse to the profits method. A3 use should be regarded as part of high street retail. If you would like to confer with the module leader about anything in your proposals, and in particular the planning uses you are proposing to include in your development, you should contact him in room M134. Coursework 1: Individual Having identified your proposed development and reported the address and outline details to the module leader, you will now produce an outline development appraisal to assess broadly how much the market considers it can afford to pay for the site. The concept of development appraisal will by now have been demonstrated in class and you will have an outline computer programme on an Excel spreadsheet on which to base your appraisal. A development cash-flow (required only for Coursework 2) will also have been demonstrated in class. The appraisal must demonstrate that the proposed development is profitable. You will now need to have an idea, based on the information you have gathered to date, of how much your development will be worth when completed and a proposal for its disposal. Your idea of end value is important as it will be a fundamental part of the development appraisal, but it may change when you further investigate comparables. Again if you have any issues with the mathematics of the appraisal or operating Excel spreadsheets, contact the module leader. Feel free to discuss the appraisal with the module leader at any time. At this stage the format of the appraisal and your procedure is more important than the precision of the purchase price for the site. Submission date: Thursday April 6th 2017 at 1.00. This part of the coursework carries 35% of the module marks. Marks for Coursework 1 will be allocated in accordance with the following breakdown (adding up to 100% of the mark for this part): Locality (10%): A description the location of the site in the wider context. What are the use classes, which are predominant in the locality? What are the heights of buildings generally? What type or style of buildings are near the site and what are their rough ages? When was the area first developed and how much regeneration has occurred since? Has regeneration been of single buildings or more extensive? What are the access and communications? Are there any predominant landowners or occupiers? Is there local public open space? What is the general feel of the area? Is the location improving or in need of general upgrading? How accessible is the location, i.e. road, public transport? Site description (12%): A description of the site itself. Is the site flat or sloping? Is it a convenient shape, which makes development relatively simple? (rectangular sites are much easier to deal with). What currently occupies the site – by use and building description? Is the site currently actively occupied or is it vacant? Think about tunnels under the site, flood risk, access into the site, ease of construction. Is it a site, which is going to be relatively difficult to build upon? You should note the tenure of the site – is it freehold or leasehold? Ideally the freehold interest in the site will be owned by the developer during the development period. If the property is to be developed with leasehold ownership, give details of the proposed leasehold terms and state why the freehold is not available. Note that if the freehold interest is not to be purchased, then the development will require consent of the freeholder, who may have ideas/restrictions on what can be built on the site and may require some form of ground rent/equity participation (and see later in these instructions the need to provide a commercial ground rent calculation whether or not your site is actually available on a freehold or leasehold basis). You will need to examine the state of the site as far as environmental matters are concerned. You may want to comment on the historic uses of the site, as far as you are able to establish; and an initial indication may be found by reference to historic maps. If you feel that an environmental remediation will be required, then you should estimate how long this might take and adjust the development period to allow for this. You would also need to allow for an estimated cost of remediation in your appraisal of the site. It may be relevant to comment upon the issue of the archaeology of the site. Is it a site which may be subject to a local authority requirement for an archaeological dig before development takes place (probably with the developer paying for the dig)? Again if a dig proceeds, then it will take time and could impact the development period. If anything material is found then it may be a requirement to bridge over the archaeological remains in order to leave them undisturbed. Acquisition of the site (10%): A description of your ideas on the methodology of acquiring the site permitting time for you to obtain planning consent. Comment on the risk of acquisition and risk mitigation or passing the risk to another party. Will you buy the site in stages, how and why? Remember that if you intend to borrow money to fund the development, then the site will need to be owned at the time that development finance is actually advanced. A lecture covers the relevant issues here in detail. The Proposal and fit with the site (12%): A description of your proposed development and planning uses. You may want to include rough plans and elevations or sections. You certainly may find it useful to relate the development to a plan of the whole site showing access and possibly the position of adjacent buildings. You are not restricted to fitting the whole of your development into one building and you may find it easier and more acceptable to end purchasers if the development is built as more than one building. If you have more than one building, you should state how many buildings you intend to build, what uses they have, how the buildings relate to each other, and the rationale for breaking the development into more than one building. You should give a broad description of adjacent buildings and say how your proposed development fits with these or contrasts with them. You may want to comment on how you arrived at your proposal and why it is appropriate to the site. You should discuss any proposed phasing of the development. Planning (14%): Provide a summary of the planning policies which are relevant to the locality and specifically to your site. Does your proposed development fit in with these policies? Are you likely to be granted consent for your development? What case will you make in your submission to the planners? Do not include a copy of the local authority planning summary/ instructions/ policy document unless there is a specific brief in respect of your site. Note that if there is a specific planning brief in respect of your site, you may choose to challenge that brief so long as you state why. Remember that the provision of planning consent and in particular the related Judicial Review Period may impact upon your proposals regarding acquisition of the site. You should note any conditions which might be attached to the planning consent insofar as they have a financial implication; examples include a social housing requirement, a need to pay for access works whether to be undertaken by the developer of the local highways authority and any likely payments to the local authority such as Community Infrastructure Levy. Risk Analysis (10%): Comment on risks and volatility as they impact on your development proposal. What risks (not including construction risks unless they are unusually relevant to your site) do you face in carrying out your development, based on the broad information you have at this stage? This section may require you to consider what you have written to date in the specific context of risk. Appraisal (20%): Your initial “open market” development appraisal based upon the information you have to hand at this stage. You may like to base this appraisal on the format provided in the computer workshop. This appraisal is to establish how much you, or anyone else, can afford to pay for your site, so you will need to allow a suitable profit margin on cost (and see the comment below in this regard). Approach (8%): Your general approach to the project, including comments on the suitability of the development to the site and your attention to detail shown in the analysis and the instructions herein. Your style of presentation of the report. [This is not a section of your coursework so needs attention but no specific comment] Summary (4%): Your summary, round-up and conclusions of this stage of the Coursework. Coursework 2: Individual You have now identified a site, drawn up a broad proposal for its development and prepared a development appraisal to show how much the market can afford to pay for the site. You now need to cast your proposals with more certainty, with a report in which you bring together proposals for the site. Having undertaken your appraisal with estimated rental and capital values for the various parts of the development, you now need to research values in the market and provide proof which supports your figures. Your report will give details of these ‘comparables’ and will analyse them in the context of your development. Once you have the analysis of the comparables you may need to amend your appraisal. Now you can confidently produce a market value and final bid for your development site. You can now further develop the proposals for the disposal of the parts of the development and this will enable you to propose a timetable for the development from agreement of the site purchase to final sale of the completed building. Your proposals will contain adequate sensitivity analysis (see below). Your final report will demonstrate how the development process will be managed throughout and a portion of the report needs to critically analyse the process. Your report should include a development cash-flow for your development; this will derive the amount of profit you will achieve for undertaking the development based on the assumption that the price you can afford to pay for your chosen site is that derived in the development appraisal (in Coursework 2). The answer (the profit per development cash-flow) will be close to the result in the appraisal in Coursework 2 but not the same. Your report must also include a ground rent calculation for the site to be used as a base for identifying a basis for partnership opportunities (see below for details). Submission date: Thursday May 4th 2017 at 1.00. 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 below. 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. 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. 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. 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. 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 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. 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 been purchased, 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. 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 purchase price has not yet been fixed and 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. A lecture will be given on forward funding. Approach (2%): Again based on your general approach to the job in hand [no specific comment required]. Summary (6%): Your summary of the whole exercise of appraisal of your site. It should include, inter alia, confirmation of, and comment upon, your final site valuation. Coursework 3: Re the New York trip; Andrew Youens leads this field trip and will set the related coursework. This carries 30% of the module marks. Andrew will, at some time, produce a coursework to be undertaken by those not attending the New York field trip. This coursework also carries 30% of the module marks. Note: The final submission dates are crucial deadlines – work will not be accepted after this date without a discounting of the mark awarded, so ensure you deliver early. In respect of Courseworks 1 and 2: Hand-in: All work should be SUBMITTED ELECTRONICALLY to Turnitin. If you want, you may additionally send to the module leader, by email, a copy of the appraisal and cash-flow. You will find it best to split up your work to include a section on each of the relevant suggested subjects shown above with mark break-downs attached. Do ensure that your submission addresses each of the subjects raised, or marks will be lost. The various mathematical exercises which Courseworks 1 and 2 require will all be addressed in the computer lab sessions in the module teaching. Please make every effort to attend these. At the end of each of these sessions you will be able to retain the software programs we produce and use them in your coursework calculations. The module leader makes much time available for one-to-one or group tutorials to discuss your work, in particular the mathematics of the appraisals and cash-flow. The module leader will be able to establish if there are mathematical errors in the appraisal and cash-flow and may be able to identify the source of such errors. Do feel free to contact him to arrange such tutorials. Note, again, the restrictions: 1 The site will not be one which you (or to your knowledge anyone else in the class) have used in connection with any other module. 2 The site will be at least one acre. 3 Your development will contain at least 3 planning uses, with the additional restrictions shown above. You must be capable of finding comparables for the chosen uses. 4 No planning use will occupy less than 10% of the total net floor area of your development. 5 No part of the development will be retained by the developer for operating as a going concern. 6 Not green belt or garden squares. 7 Direct frontage onto publicly maintained road. 8 Development of the site must be profitable. Borrowing for the purposes of raising some or all of the cost of the development: The standard development appraisal and cash-flow assume that the whole of the cost carries interest at a senior debt rate and such interest is included in the appraisal and cash-flow as a cost. It is however an “opportunity cost” rate as the actual amount of debt available, and the cost thereof, will vary from one developer to another. So do not differentiate in your appraisal and cash-flow between debt and equity. The appraisal and cash-flow are intended initially to show the market opinion of the value of the site and not the value to any particular developer whose cost of development will depend upon its ability to borrow. Having established the market view, then the need to pay a higher price to secure purchase of the site may be partly justified based on a particular borrowing strategy and cost. Word Count: As with any business report there is no specific word count requirement. Content will be whatever is required to fully make your case and will include your selection of any figures, maps, photographs and sketched diagrams which you feel are necessary to adequately describe your proposed development. Finally: note that these coursework instructions relate to January-May 2017. They are different from the instructions provided in previous years, particularly as to the allocation of marks, so the instructions of previous years should be disregarded. Any coursework which is submitted and which is not conceptually in accordance with the instructions above will not be marked. 1.75-2.9 2.7 The fundamental theories relevant to this question are provided without ambiguity and refers to a text or journal article, but these may not be well discussed.Some context provided. Reflection demonstrates satisfactory clear reasoning and provides reasonable discussion on the “cultural fit” to the organisation. 3-3.5 3.2 The fundamental theories relevant to this question are clearly identified and explained, without ambiguity and in context and with reference to a suitable journal article. Reflection demonstrates clear and consistent reasoning and provides detailed discussion on the “cultural fit” to the organisation. 3.6-4.15 3.7 The fundamental theories relevant to this question are clearly identified and described well, with relevant information and argument where necessary for understanding. The context is clear and suitable journal article(s) are used. Reflection demonstrates clear, consistent and detailed reasoning and provides high-level discussion on the “cultural fit” to the organisation. 4.2-4.75 5 The fundamental theories relevant to this question are clearly identified and described comprehensively, delivering all relevant information necessary for full understanding. The context and background are well explained and suitable journal article(s) are used. Reflection demonstrates consistent and systematic reasoning and provides thorough discussion on the “cultural fit” to the organisation. 4.8-6 Quality of language and ability to communicate information accurately using academic style ULO2 (Max 4 marks) 0.4 Writing filled with grammatical and spelling errors. English expression is difficult to understand. Little or no use of paraphrasing, with a heavy reliance on quotes. In-text citation and referencing have not been used or do not conform to Harvard standard. 0-1.55 1.2 Many grammatical and spelling errors. English expression is difficult to understand, but meaning can be made of what is written. Little effort has been put into paraphrasing of material. In-text citations not utilised or inaccurate. List of references does not follow the Harvard referencing style correctly. 1.6-1.95 1.6 Expresses thoughts meaningfully, even though there may be occasional errors. Paraphrasing uses too many of the author’s own words. In-text citations are too sparse and/or mostly inaccurate. Some attempt to present a list of References following the Harvard referencing style, but may have several errors. 2-2.36 1.9 Expresses thoughts meaningfully, even though there may be occasional errors. Paraphrasing portrays the ideas of others in student’s own words. In-text citations are accurate in most cases and are just adequate to the task. List of References presented using the Harvard referencing style accurately in most cases. 2.4-2.76 2.2 Communicates meaning with clarity and fluency. Writing is almost error-free. Paraphrasing correctly portrays the ideas of others in student’s own words. In-text citations are accurate and support the arguments made in the assignment quite well. List of References presented accurately using the Harvard referencing style. 2.8-3.16 3 Skillfully communicates meaning with high level of clarity and fluency. Writing is virtually error-free. Paraphrasing correctly portrays the ideas of others in student’s own words. In-text citations are accurate and support the arguments made in the assignment very well. List of References presented very accurately using the Harvard style. 3.2-4 List of suggested academic journal articles, books and book chapters: Carroll, AB and Shabana, KM, 2010. ‘The business case for corporate social responsibility: A review of concepts, research and practice’, International Journal of Management Reviews, vol. 12, no.1, pp. 85-105. Edwards, JR, Caplan, RD and Van Harrison, R, 1998. Person-environment fit theory. In CL Cooper (Ed.) Theories of organizational stress (pp. 28-67), Oxford University Press, Oxford, UK. Edwards, JR, Cable, DM, Williamson, IO, Lambert, LS and Shipp, AJ, 2006. ‘The phenomenology of fit: linking the person and environment to the subjective experience of person-environment fit’, Journal of Applied Psychology, vol. 91, no. 4, pp. 802-807. Ferguson, J (2016) ‘Corporate response to climate change: language, power and symbolic construction’, Accounting, Auditing & Accountability Journal, vol. 29, no. 2, pp. 278- 304. http://ezproxy.deakin.edu.au/login?url=http://dx.doi.org/10.1108/AAAJ-09-2013-1465 Hollensbe, E, Wookey, C, Hickey, L, George, G, & Nichols, CV, 2014, 'Organizations with purpose’, Academy of Management Journal, vol. 57, no. 5, pp. 1227-1234. Available from: 10.5465/amj.2014.4005. http://ezproxy.deakin.edu.au/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=heh&AN=98822522&site=eds-live&scope=site Jovanovic, Z, 2015. ‘Management and changes in business environment’, Ekonomika, vol. 61, no. 2, pp. 143-151. http://ezproxy.deakin.edu.au/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=103670794&site=ehost-live&scope=site Robbins, SP, DeCenzo, DA, Coulter, M, Woods, M 2016, Management: The Essentials 3e, Pearson, Melbourne, Australia. Szymańska, K and Walecka, A, 2016, ‘Culture openness as an element of positive potential of enterprised in a crisis situation’. Journal of Positive Management, vol. 6, no.4, pp. 53-65. http://ezproxy.deakin.edu.au/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=116483370&site=ehost-live&scope=site Verbos, AK, Gerard, JA, Forshey, PR, Harding, CS and Miller, JS, 2007, ‘The positive ethical organization: Enacting a living code of ethics and ethical organizational identity’, Journal of Business Ethics, vol. 76, no. 1, pp. 17-33.