SRE464 - Assignment 3: Individual Spreadsheet Appraisal Development

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ASSIGNMENT 3

INDIVIDUAL SPREADSHEET APPRAISAL DEVELOPMENT

30 Marks

Week 12 (Study period) See assessment submission schedule on page 2

Part A - RESIDUAL VALUE ESTIMATION

Building development appraisal involves the preparation of a developer’s budget. Using the information provided below, estimate the residual value of a speculative open plan development, and calculate the predicted developer’s profit. Your spreadsheet will contain a clear description of the cost elements and the inputs relevant for your building appraisal.

The cost elements in your spreadsheet should include:

  • Area
  • Gross to Net Area ratio
  • Rental value ($/m2)
  • Investment Yield (%)
  • Building Cost ($/m2)
  • Finance rate per annum (%)
  • Pre-building period (months)
  • Letting period (months)
  • Developer’s target profit (%) as a proportion of Net Development Value,
  • Developer’s target profit as a proportion of Development costs, and
  • Site Value ($)

Other issues to consider for this task:

  1. The Estimated Income will consider the Gross Area (m2), Lettable Area (%), and Annual Rental Income.
  2. The Estimated Capital Value will consider the Yield and the Years’ Purchase (YP) in perpetuity of your building development. Both your Estimated Income and Estimated Capital Value will be useful in calculating the Gross Development Value and Net Development value.
  3. The spreadsheet will also include your total finance costs and the different components of interests across the pre-construction, construction, and void stages of the project.

The Spreadsheets should develop formulas to link all the elements together and provide the residual value of the building development.

Variables Data
Pre-building period 6 months
Building period 16 months
Letting period 12 months
Developer's Target profit 10% of Gross development value
Gross Area 1,300 m2
Gross to Net Area 85%
Annual Rental Income $550 per m2
Investment Yield 12%
Building Cost $1,800 per m2
Finance Rate 4.0%
Site Value $950,000
External works on site $120,000
Demolition works on site $80,000
Professional Fees 10% of construction cost
Site Investigation $15,000
Planning Fees $20,000
Building Regulation Fees $15,000
Funding Charges, Legal charges 2% of total amount borrowed
Marketing and Agents' fees 18% Of annual income
Developer's Sale Fees 1.25% of net development value

PART B - UNCERTAINTY AND RISK ANALYSIS

COVID-19, inflation and interest rate pressures have introduced several uncertainties in the global economic and financial markets, especially in relation to the cost of construction and revenue from property developments.

Using the software @Risk (available through Deakin Apps and Desktop Anywhere, https://ada.deakin.edu.au), you are required to model the possible impact of the following risks/uncertainties on the estimated developer’s profit from Part A

Building Cost (per m2) Finance Rate Annual Rental Income
Minimum $1,500 6.00% $550.00
Most Likely $2,500 7.5% $640.00
Maximum $3,200 9.5% $720.00
Assumed Distribution Pert Triangle Pert

Following your analysis, please answer the following questions

  1. What is the P60 estimate of the total building cost?
  2. What is the likelihood of making a loss on this project?
  3. What is the likelihood of making at least $100,000 net profit on this project?
  4. What is the P60 estimate of the Net Profit of this project (please measure net profit as a percentage of the Net Development Value)
  5. How can the developer reduce the impact of some of these risks on its business?

Your report should include ‘output graphs’ from @Risk that illustrate the outcomes of your risk analysis.

FORMAT OF ASSIGNMENT

You are advised to use MS Excel for your spreadsheet development, however, feel free to utilise other spreadsheet applications that you are comfortable with.

This assignment should be presented in a professional manner, including both spreadsheet(s) and written reports.

The Unit Guide allows for a 2000-word report, exclusive of spreadsheet data, tables, figures, charts, diagrams and references.

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