DEVELOPMENT ECONOMICS (URBAN 5082)
Development Appraisal Project Brief (Resit)
The proposed development site (Figure 1) is Merchant City Candleriggs Square, a property bounded by Hutcheson Street, Trongate, Candleriggs and Wilson Street in Glasgow’s Merchant City. It is a 1.49ha brownfield site in the heart of Glasgow which has a massive potential for a mixed-use scheme that can transform and contribute positively to the already successful Merchant City. A detailed description of the site can be found here and you can also view the property and adjoining streets using Google map.
Figure 1: Proposed development site
You are employed in a leading firm of Planning and Property Development Consultants and have been instructed by a client, to prepare a viability evaluation of the potential site. Your client (Land Developers and Partners) is a major speculative trader developer that undertakes a wide range of single and mixed-used developments predominantly by borrowing the necessary capital and selling on completion. The developer aims to develop a mixed-use development on the site but unsure how much to bid to acquire the site.
You have been asked by your client to provide professional advice on your finalised development under expected future market conditions; its viability; and how much to offer if your client buys the outright ownership right.
The project will involve assessing the site area to identify development options and how your final proposal will fit within the neighbouring land uses. You will also be required to undertake some desk study of secondary data sources e.g., CoStar, Zoopla, market reports, professional and academic journals, newspapers, government reports, development plans, planning policy documents and other supplementary materials which will be stored on Moodle or can be obtained from the university library and the website of the relevant organisations.
You are expected to collect your input data for the appraisals, but you should allow for the following as applicable:
- Your client has a required return of 15% of development value, development finance interest rate of 9.5% per annum.
- A minimum 12-month preliminary period, 5% management cost, letting fees 10% per annum and sale fees 1%.
- If applicable, assume any office, retail and leisure premises are let on completion on Full Repairing and Insuring basis with a 3-month fit-out rent-free period.
- You should also allow £100,000 for initial design costs, 5% of construction costs for contingencies and 12.5% for professional fees.
- Gyms/art galleries on higher floors in an office block should be treated as office space.
- Buy-to-let housing can be valued using either the income method or the direct comparison method since the units are currently empty. If selling as affordable housing, you will need to
discount as appropriate.
- When working out the maximum bid price for the sale, you should allow 6.8% land acquisition costs (to cover Land and Building Transaction Tax and associated legal and agent fees).
The assignment is due no later than 12 pm, Monday 26th April 2021. You are advised to run the main body of your coursework (not the appendices) through Turnitin as a draft before making the final submission. You should also complete the check of confirmation of electronic copy submission in the box near the bottom of the coversheet. An electronic copy of the coversheet and guidance on how to use Turnitin can be found in the SPS Common Room which is accessible via the course Moodle. Assignments not submitted by the required deadline will be subjected to a 2-mark deduction for each working day overdue, up to to a maximum of five working days. If an assignment has not been submitted within five working days of the deadline, it will be awarded zero (grade H).
The report should be word-processed and contain no more than 2,500 words (+/-10%). Please note that you are limited to 30 A4 page sides (including the front and back covers, the main body of the report and the appendices). Any report over the specified page limit will be penalised by 2-point deduction. A penalty will also be imposed on submissions that exceed the 2,500-word limit as per the university rules. The DCF appraisal and sensitivity analysis/scenario testing should be undertaken on a spreadsheet and attached as appendices, but discussion should be included in the main body. These calculations should be clearly laid out, using a font that is easy to read. You must score a grade of D3(9) or above for your submission to pass the course. Please note that the assessment regulations concerning resit supersede any rules specified in this brief.
The specific marking criteria and weightings are as follows:
- Description and illustration of your proposal, and informed discussion on the suitability of the use, massing and layout of the development proposed in relation to the site, policy objectives for the immediate neighbourhood and city and any legal issues that may present a problem for your client (10%).
- Discussion of your development timeline and explanation of your appraisal assumptions regarding the development process, construction activities and disposal (15%).
- Review of market conditions for only the proposed uses to evaluate the demand and supply conditions expected when the development is completed and to determine the inputs (e.g. market
rent, price, investment yield, etc.) for appraisals (25%).
- The degree of competence, logic and sophistication demonstrated when undertaking the development appraisal as well as recommendations on the maximum bid price that your client can offer to buy the site (25%).
- The competence and robustness of your sensitivity analysis and scenario testing, and the advice provided regarding risk mitigation and financing (15%).
- The overall structure, presentation quality and clarity of the report; ability to distil the key points and present them succinctly; and use of relevant sources to support arguments (10%).
CoStar provides market reports, area analytics and contains a transaction database for commercial properties and will potentially be useful for this project. If you do not yet have access to CoStar or have any logging problems, please contact the course coordinator or email email@example.com. You may also need to consult other sources for real estate data that are outwith the CoStar database, click here for the list of websites where you can obtain further real estate market data. CostModelling provides information on building cost, but there is also a copy of the Spon’s Architects’ and Builders’ Price Book (2019) on Moodle.
Given the information already made available to you, there should be no reason for you to contact any external party (e.g. city planning department, tenants, owners or surveyors) about this site. Any requests for material or information must be channelled through the course lecturer. On no account should you enter the areas of the site closed to the public, partly for your safety and partly for legal reasons.
This is an independent submission and not a group work. The School recognises the benefits of students studying and working in groups to hone their skills at valuation, appraisal and data collection and analysis, but there is a point where this becomes unacceptable. Your interpretation of market evidence, market rents and market yields, and the layout of your appraisal must be wholly independent. Marks will be deducted if there is evidence of that any groups of people have submitted reports with elements that are clearly joint efforts.