Financial Appraisal Report Content

The financial appraisal report should contain 4 sections that cover the initial design concept, initial financial appraisal, design, and financial viability analysis, balancing design and profitability. Further detail on each of these sections is provided below. 

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Financial Appraisal Report Content

The financial appraisal report should contain 4 sections that cover the initial design concept, initial financial appraisal, design and financial viability analysis, balancing design and profitability. Further detail on each of these sections is provided below.

Section 1. The Initial Development Proposal

This section should provide a brief description of the design concept, comprising of (i) a copy of the design concept drawing; and (ii) the basic details of the design concept in a style similar to that of the example used in class. You should use the table found in the SCHEME NOTES sheet of the spread sheet. You will need to estimate the m2 floor space of each building use (such as office, retail residential), carparking and each site work (grassed areas, hard landscaping, footpath, roads etc). To do this, you will need to make some assumptions about the % proportion of the site area given over to each of these. A general guestimate is perfectly fine. The total ground floor area of all buildings plus the area of all site works should match the site area. You will also need to make some assumptions about how may floors each building has to fully complete the table.

Section 2. Initial Financial Appraisal

The residual valuation of the design concept, including:

1. Cost and value data: A brief explanation of your choice of cost and value data. It is not necessary to go through the cost and value data one by one. Your broad approach should be set out. For example, that if you have designed a high-quality scheme and selected costs and values from the high end of the ranges given, explain why.

1. The appraisal: present the full workings by screen shotting and reproducing the following spreadsheet sheets in the report (each sheet should have its own page) – LAND COSTS, CONSTRUCTION COSTS, VALUATION and APPRAISAL 1.

1. The result: state the rate of developer’s profit achieved and comment (briefly) on the viability of the scheme.

Please note, the purpose of this section of the financial appraisal report is not to prove your design concept achieves a 15-20% profit. You are simply undertaking an initial analysis to determine your design concept’s profitability in order to help you complete the remaining sections of the report.

Section 3. Design and Financial Viability

Undertake a ‘hypothetical’ design analysis on your design concept and analyse the results. This should cover:

1. For each ‘hypothetical’ design change (development density, mix of use and building specification):

0. a brief description of the method, including tables of area changes for density and use changes (as set out on page 1 of the note on ‘Design and Financial Viability’); and a statement of the % increase and / or decrease in construction costs and rents / prices for specification changes (as on page 2 of the note);

0. the resulting developer’s profit.

1. A comparative analysis of the results, including a commentary and tables in the style of those presented in the notes and lecture slides.

Section 4. Balancing Design and Profitability

A consideration, in the light of the foregoing analyses, of the scope for revising the design concept to achieve a better balance between design and profitability, covering:

1. Design changes that either (i) for high profit design concepts, will enhance design and reduce profit without making the design concept financially unviable; or (ii) for low profit design concepts, will enhance profit without making the design concept unacceptable in design terms.

Please note, the purpose of Section 4 is not to prove your revised design concept achieves a 15-20% profit. Rather, you should demonstrate what design changes you will consider that will help to effectively achieve a better balance between design and profitability.

Financial Appraisal Report Format

The report should be A4 size and paginated so that the document is divided into discrete pages and is reproduced in a professional manner. Screenshots of the appraisal workings should be clear and legible. The title page should carry the title of the assessment, your student number, the University, the Department and course details, and the date of submission.

The word
guide for the text part of this assessment report (that is, excluding Tables etc) is 750 – 1000 words; the word
limit is 1,250 words. You must include a word count of the text on your cover page.

My chosen area is G

Section 1 – The Design Concept

The area of Site B is

1320

0 m2. Considering that the convenient transportation access to Site B but the poor environment of it, it is described as an industrial centre of Neepsend with workshops, offices and necessary facilities in the Neepsend AAP. Based on the instruction of AAP, a considerable number of new buildings will be constructed for live-work accommodation, art workshops, office, restaurants, cafes, pubs, bars and a hotel, while the House Skate Park will be preserving. The sketch plan of Site B is shown in Figure 1.

The new buildings for live-work accommodation (3 floors) and art workshop (2 floors) are adjacent to each other at the north-west corner of Site B, with 10% and 13% of the site coverage respectively. An office building (4 floors) with 12% of site coverage and a mix-use building (6 floors) for restaurants, cafes, pubs, bars and a hotel will stand at the middle of the site. Moreover, there will be a new multi-storey car park (3 floors and 8% of the site coverage) and pocket green park at the east corner of Site B. The rest area of Site B consists of hardstanding (20%), footpath (3%) and roads (8%). The specific coverage of diverse usages and floors of buildings are available in Figure 2.

Figure 1: Sketch plan of Site B.

Source: The map from DigiMap. Edited by author.

Figure 2:

Building

s and Site Coverage of Site B. (The area of Other includes the buildings of skate park, restaurants, cafes, pubs, bars and a hotel.)

Source: Author’s own.

Section 2 – Initial Financial Appraisal

The total land costs of Site B are £3,775,200 (13,200 m2 and 285 per m2) (Figure 3). Then, based on the description in Neepsend AAP that the land prices and rents are lower than the others area around the city centre and positive expectation of that, all the unit costs of various buildings used in the calculation of construction costs are the average ones and the construction costs are £20,542,064 (Figure 4). When it comes to the valuation, most of the prices or rents used in the calculation are not the average ones. Considering the shortage of parking space and the number of non-native population in Neepsend, the rent of multi-storey car park is the largest one (60 of 50-60 per m2) in the rent range, while that of the hotel is the smallest one (100 of 100-120 per m2) (Figure 5). The rents of others are a bit lower than the average numbers. Subsequently, the residual value of Site B is £1,803,902 and the developer’s profit is 6.1% (% on cost) (Figure 6).

Figure 3: Land Costs.

Source: Author’s own.

Figure 4: Construction Costs.

Source: Author’s own.

Figure 5: Valuation.

Source: Author’s own.

Figure 6: Financial Appraisal 1.

Source: Author’s own.

Section 3 – Design Analysis

1. Development Density

Through changing the development density of the scheme (the gross floor space of each building increased by 10%) and keeping the mix of uses and building specifications constant, the new profit reaches

8.09%

. The respective figures in the CONSTRUCTION COSTS and the VALUATION pages of the spreadsheet are changed as follows:

1320

1452

	Building		Original m2		Revised m2
	Multi-storey car park			3168	3485
Offices	5034	5537
	Art workshop			3432	3775
	Live-work accommodation			3960	4356
A hotel	4940	5434
	Pubs and bars						1320		1452
	Restaurants and cafes
	Total			23174	25491
	Developer’s profit		6.10%	8.09%

Table 1: The Change of Each Building-1.

Source: Author’s own.

2. Mix of Use

Through changing the mix of uses in the scheme (transfer 10% of the total gross floor space between the two largest uses- from offices to hotel) and maintaining the original amount of gross floor space and specification level, the new profit is

0.64%

. The respective figures in the CONSTRUCTION COSTS and the VALUATION pages of the spreadsheet are changed as follows:

Building

Original m2

Revised m2

Multi-storey car park

3168

3168

Art workshop

3432

3432

Live-work accommodation

3960

3960

Pubs and bars

1320

1320

Restaurants and cafes

1320

1320

Total

23174

23174

Developer’s profit

6.10%

Offices	5034	2717
A hotel	4940	7257
0.64%

Table 2: The Change of Each Building-2.

Source: Author’s own.

3. Building Specification

Through changing the scheme’s building specification (increase the construction costs and rents by 10%) (Figure 7) and maintaining the original mix of uses and amount of gross floor space, the new profit reaches 6.80 in Scheme Valuation B (Figure 8).

Figure 7: The Change of Building Specification.

Source: Author’s own.

Figure 8: The Result of Analyzing change.

Source: Author’s own.

4. A comparative analysis of the results

After conducting design changes of the same proportion (10% in this case) through three comparative approaches, the result indicates that two (Approach 1 and Approach 3) enhance profitability but the other (Approach 2) reduces it (Figure 9). On one hand, Approach 1 (Development Density) and Approach 3 (Building Specification) are slightly similar. Although the construction costs will arise with the increase of density or specification, the land costs are fixed, which means the unit development costs are reduced. As a result, the developer will gain a higher profit rate through the two approaches. On the other hand, the developer’s profit rate decreases as the proportion of the offices are given over to the hotel in Approach 2, and this shows a larger proportion of more profitable land use can bring developers a higher rate of profit.

Figure 9: The Comparation of Design Change.

Source: Author’s own.

Section 4 – Balancing Design and Profitability

As calculated above, the current rate of the developer’s profit is only 6.10%, lower than 15%, which will have an impact on the viability of the current development proposal. Considering the foregoing comparative analysis, enhancing the proportion of high-profit land use (for offices and hotels) or the density of high-profit building is a practical approach to create more profit and make the proposal more viable.

However, some related policies might limit the scope of the changes. As Policy CS74 from Sheffield Development Framework Core Strategy (2009) recommends that the development should be of high quality and ensure the needs of all residents being met, the space generating non-value but helping improve the quality should not be removed. Besides, the City Centre Living SPG (2015) states that car parking is not necessary beyond the provision of disabled spaces, which means the parking space is important for Neepsend considering it is adjacent to the city centre. In a word, the green space, hard landscaping and car park should be preserving.

Consequently, to balance design and profitability, the current profit rate might be enhanced by increasing the density of some high-profit buildings- offices or changing the mix use- decreasing the proportion of the hotel and enlarging that of offices.

References

1. Sheffield City Council (2009). Sheffield Development Framework Core Strategy [online]. Available at: https://www.sheffield.gov.uk/content/dam/sheffield/docs/planning-and-development/core-strategy/Core-Strategy—adopted- March-2009–pdf–6-55-MB- [Accessed 28 April 2020].

2. Sheffield City Council (2015). City Centre Living Supplementary Planning Guidance [online]. Available at https://www.sheffield.gov.uk/content/dam/sheffield/docs/planning-and-development/sheffield-plan/City%20Centre%20Living%20-%20SPG%20Update%20Dec%202015 [Accessed 28 April 2020].