Development Appraisals with Chris Lloyd

Introduction

Development appraisals are a cost and benefit assessment tool for developers and investors. They can be extremely comprehensive and complicated, but will predict almost every cost to the developer and investor. From all of this, they identify the expected profit margin.

However, development appraisals can never be completely accurate. They are likely to increase in accuracy throughout the project process - once some real costs have been pinned down. Therefore, an appraisal should be seen as a development aid that indicates, rather than guarantees outcomes. They help developers and investors decide whether to take a calculated risk.

Appraisals are calculated in Excel spreadsheets that gives instant results and demonstrates that very small changes in certain inputs effect the outputs dramatically. Finely-tuned data sets will make the final predictions more robust. A great deal of pressure therefore rests on the surveyors calculating the correct figures to input in the first place, and on the project management to keep construction costs to a minimum, if profit is to be maximised.

Practical Example

Chris used the appraisal for Neo Bankside, a recent development beside the Tate Modern in North Southwark to guide us through the process. Colours below relate to the appraisal's inputs on the spreadsheet.

The appraisal was basic, but had two main sections: a schedule of areas (red border) and a schedule of variables (green border), including costs and outcomes.

The first task is to work out the aggregate area of development for each use, such as private and affordable housing (orange), and how many units will be for sale. This information will come from the design team, who will pass it onto the QS to estimate the construction costs (yellow). These figures will become more accurate if the design team work with the Local Authority, who will be able to advise on a realistic scheme and the expected volume of permitted development.

We then estimated all the costs: site prep £0.5m-£1.5m, External Works £0.5m etc. It is likely however that the developer used similar figures to ours at the start of the project, way back in 2004 or thereabouts when he was purchasing the site.

Filling in the Regulatory Fees (pink) and general Fees (green) are standard costs that are required by the planning process, design and legal professionals. The Section 106 costs however, are dependent on the number of built units, and for Neo Bankside, amounted in almost £10m (= 774units x £12000).

The S106 rate is negotiated at £/unit. So if the cost/unit is reduced from £12000 to £10000, the aggregate outcome is a reduction of £1.5m less S106. This illustrates the importance of S106 negotiations.

The private residential Values (light blue) are were taken from the Neo Bankside brochure and are £12000/sqm. The affordable residential Values are estimates of what RSLs pay for the affordable units, and are priced at £1500/sqm. I was surprised that this figure was so low, but it explains why the developers often try to negotiate the percentage of affordable housing units - because they are sold at such deflated rates.

Specific Inputs are the developer's specific costs, which in this instance include the purchase of the land and the residual profit. These are calculated on the other sheets which include much of the same data and are linked in. They use the Net Development Value calculation to work out the change in cost over time, the reduction of capital costs and therefore the risk. The land was purchased for £27m, so with this method, they have worked out the increase in land value is £55m and the residual profit stretching as far as £279m.

Finance and Time are also variables that require estimates and these will affect the outcomes significantly over time because payment of interest will result in millions lost if the flats remains empty and unsold.

Obviously, any change in the inputs will cause fluctuations to the outputs. But changes to the sale price/square metre is the most important factor – as tiny changes here will massively effect the rate of return. For instance, just dropping the private residential price from £13000/sqm to £11000/sqm, causes a £43m loss (£279m to £236m). This indicates how susceptible market confidence is to tiny fluctuations in property prices.

One final comparison with this appraisal, is the public-private gains. The units are being sold at £12000/sqm, and the S106 is calculated at £12000/unit. This results in a public sector gain, approximately 1/30^th of that made by the developer, who's total profit is nearing £300m.

Thesis Thoughts

I came to this MA with a particular desire to understand particapation, engagement and consultation as part of the Planning System. I came to the course with a critical hat on, worried that despite increased participation, people remain marginalised and so I started with many concerns.

So far, I've written a history essay about experiments in this field during the 1970s and I'm exploring what consultation means today as part of my design work in the Free Unit.

I'd like to explore this further. I'd like to do more historical analysis and comparison and find out what 'Advocate Planning' really was, in the 1980s. I'd like to find out who did it and what they achieved. I'd like to study more historically and theoretically, assessing the successes and failures of public participation and the strengths of legislation that supposedly champion it.

Historical and present-day case studies will be useful and will include: The People's Plan for the Royal Docks, Coin Street Community Builders and the Bermondsey Neighbourhood Forum.

With 'Localism' just around the corner, and with the possibility of privatised planning departments becoming an ever more increasing prospect, I'd like to explore what it may mean to be an Architect-Planner in 2011 and beyond, during the new dawn of "People-Power".

Start Again #3

Start Again #3 was another whirlwind tour down London Met's in-house Memory Lane. Kieron pulled out two of LMU's high-flying faves - East and FAT. Both companies have a long history and strong association with the ASD. Both companies' directors have been taught/teach/have taught at the school and Thursday was an opportunity for reflection and analysis on their professional success so far.

It was a little odd, because for these companies are so well-known amongst students, that they've become the usual suspects, rather than new, fresh-faced start againers. Neither have they been around for forty years and are now starting again by re-training as psychologists (which is something I'd quite like to see, and was expecting as part of the Start Again series).

However, to be fair, in the grand scheme of things, both East and FAT are doing new-ish things. Their approaches are new, innovative and have unexpected results. Compare them to Foster or BDP and it's easy to see who's doing the more 'interesting' work.

But is this enough? Is that what Starting Again is? Is doing something slightly more 'interesting' the best we can hope for as architects or town planners?

I believe it is symptomatic of the ultimate, constant frustration, that once having joined the system, it is hard to change it - because your own interests as a professional, or company director quickly align with those of the system, thus limiting your own influence for change.

This was evident in FAT's infamous social housing in New Islington, Manchester. FAT relayed the story of how, through competition with two other firms, they won the hearts and minds of locals who chose them to redesign their housing block. FAT then 'got to know' the residents, how they lived and how they spatially connected with their domestic realities. Having been inspired by their findings, FAT then created a terraced housing development wrapped by a thick facade that utilised some of the resident's own symbology in its huge, explicit form.

In principle, this doesn't sound too bad - that is until you notice that the inside rooms are standardised, the ceiling heights low, and the whole story delivered by Sam Jakob with a satorial and patronising air. Sam was convinced that because the architect is using the 'people's own stories' to develop a form for the building and because he is allowing the residents to choose from heart-shaped, diamond-shaped or spades-shaped kitsch fencing, that the architect is doing everything in his capacity to be a 'servant of the people'. But this is not the case, and it is the democratic pretentions of this firm that make it so unbarable. Somehow, I prefer corporate, commercial firms that are honest about their dealings and their courtship with big business. Renzo Piano too, suffers from this syndrome - one where he is alludes to being the hero, saving and 'fixing' the city, drawing out its 'urbanity', but says so with such a smug look on his face that it's hard to trust the guy. He's got rich quick and now he doesn't care. Hence you wonder if he ever did.

The 'process' may be relatively democratic, but it remains uninclusive and architecturally standard. Although I've got no proof, I wonder what the place is actually like to live in. By Sam's own admition, the kitchen was IKEA - but I mean in terms of space and quality. I would have prefered a story where the architect could have explained how the money was spent to maximise living standards, ceiling heights and light penetration. But maybe I just have a different value system?

I don't know. Maybe I got it totally the wrong end of the stick, maybe the ceilings are high and the rooms are spatious. But I still find the delivery patronising and fake. In my book, it's not cool to rinse public sector money to get a double spread in BD. And giving people a choice of three types of kitsch fence is not democracy. If we're talking about starting again, I'd like to see really inclusive, open design, not architects' egos. I would have asked Max Nasatyr to come and talk about his role in the Coin Street Community Builders, but sadly he died in 2003. Given the publication of the Localism Bill, it'd be interesting to see how community projects will take shape over the next few years. You can read Max's Obituary here.

London Met has been occupied!

During Thursday night's Start Again #2 lecture, a group of democratically organised, autonomous students occupied the Finance Department of LMU. This has also shut down the infamously beaurocratic and cut-throat HR Department.

The Occupiers have established a safe, open space for alternative, free education - demonstrating an alternative and new ethos of education and are actively starting again.

Come and join us, follow the blog at www.wearelondonmet.wordpress.com, and send messages of support and love to 07775531897.

...and get ready for Thursday!

Start Again #1

The lecture consisted of a number of short manifestos by various ASD tutors and affiliates. It was great to hear a diverse panel presenting real thoughts and feelings without much pomp or pretention. Although I didn't agree with everything that was said, it was refreshing to hear what drives these people, what they like, what they don't, what they're fighting and what they're aspiring to.

Highlights included:

1/ Peter Carl's frank bashing of capatilist-economy-driven-city-evolution.
Finally he's getting to the point and explicitly drawing attention to the spatial divide between rich and poor in developed nations.

2/ David Kohn's proposal for a coppiced woodland and on-site Art Gallery in an East London park.
It was an interesting proposal that was neatly conceptualised and visualised. The aim was to mitigate the operational costs of the Art space by integrating the building into a public park and relandscaping the area with willow coppice to burn in an on-site Biomass plant. It was a cleverly integrated, urban proposal that reminded me of MVRDV's Pig City, which is also seductively self-contained. It was polemical and unrealistic.
Kohn's Deptford Creek Charrette proposal hailed a new era of participation and discussion in the industry.

3/ Studio Weave's grappling with the 'Money as Motivator' problem.
This was fascinating because the studio (two ASD alumni) were sharing their challenges of growing their practice. It was great to hear people sharing their moral dilemnas publicly. Although I disagreed with a lot of what Maria said, it was interesting to hear that discussion because it's seldom discussed in either education oro practice.

4/ Anne from ASD projects identifying Free Schools, Localism and Big Society agendas as opportunities for Architects.
Luckily Robert Mull questioned the government's agenda in a very eloquant way. He noted the Tories' dislike of the 'collective' and the smokescreen being created by these agendas.

Manifesto #2

Since the beginning of the course, I've become 23. I'm older, and hopefully wiser.

What I find very interesting at the moment is the recent change to the planning system and how this is effecting urban space, social conditions and the way Local Authorities operate. The scrapping of the Unitary Development Plans (UDP) by New Labour and the introduction of the Local Development Framework (LDF) system has allowed LAs to be very specific and very loose at the same time. Effectively, it is desolving power and discretion to LAs, allowing them to plan precisely, pre-empt the market, regulate developmet and plan the economy.

Of course LAs are still pressured by targets and other developments such as Crossrail, but they are now more able to accommodate and plan for that change before it happens, rather than responding to it once it's happened. There is a lot of grey space now for manoevuring since space is now less defined by boundaries. There is a loose relationship here at national, regional levels, which is mostly done through target-setting. At the Local scale however, LA's have to work out how to spatially arrange the implementation of government targets by connecting space and the economy.

In Islington for example, Local Neighbourhood shopping centres have been allocated and policy drafted to protect the scale and type of shops in the area, thus regulating the market. Similarly, in Hillingdon, open space is being safeguarded for mineral extraction and food production. This is in response to the Mayor's target figure of 0.5 million tonnes of aggregates per year for west London.

Three sites in Hillingdon have been allocated for aggregate production as set out in The Minerals Technical Background Report (2008), which concludes there are three sites able to provide the defined aggregates requirement for the borough over the Plan period:

Land west of the present Harmondsworth Quarry
Land north of the village of Harmondsworth, and
Land at Sipson Lane, east of the M4 spur.

All of these are situated between Heathrow and the M4 in the Heathrow Villages - ie: on land that could, one day, be used to build a third runway and two new terminals. LB Hillingdon's Draft Core Strategy identifies how the Council will support business and the local community through transport infrastructure and by supporting business such as hotels. But by doing so, it'll also make it more difficult and more expensive one day, for BAA to expand the airport northwards.

I find it fascinating how Councils can produce policy that supports development expansion but, if allocated in a certain way, can indirectly limit the growth of unwanted, damaging developments. It's interesting to see to what extent they are simply regulating the market and to what extent they are actively planning the economy.

I've realised that the reality of the planning system is about creating better environments for communities, to create positive regeneration and to protect these areas through the careful articulation of policy.

However, my concerns remain. Democracy and inclusivity is important and is often side-lined. The way policy and plans are produced, are still unknown to most people. Regeneration often equates to gentrification. But I think that all these can still be tackled - through more precision in the maps and policy as well as through increased community involvement. It would be amazing to see the system developed at grass routes levels in collaboration with Local Authorities, but I am not convinced that this will be the way that the government's new Localism agenda will play out.

Glossary #2

Here is a list of my revised terms. The original terms are indicated with (a) and the new or revised terms with (b).

Planning
(a) Setting out a strategy in order to facilitate something happening or changing.
(b) Setting out a strategy in order to facilitate something happening or changing.

Spatial Planning
(a) Planning the city.
(b) Planning the city, which is a complex process that necessitates the inclusion of every aspect of the city and knowledge of how they are related.

Design
(a) A discipline that combines problem-solving with material appropriation.
(b) A discipline that combines understanding, balanced consideration, problem-solving with material appropriation.

Urban Design
(a) Designing the city.
(b) Designing the city is a process that brings together an understanding of Spatial Planning and Design and applies them simultaneously to the same space. Often however, Spatial Planning will operate at a larger scale than Design. It will provide the needs to which the design must respond and accommodate. Sometimes, the design process will feedback to the Spatial Plan with proposals or amendments.

Consultation
(a) A dialogue with citizens that needs radical reform to make it a two-way process.
(b) A complicated process of discussion and debate with citizens to ensure a democratic endorsement of an area's Spatial Plan. Most of the time, this is done by writing letters to Council Departments and Officers and making comments online about draft policy documents within the Council's set timeframe. Interested parties are also consulted by LAs. Unless there is a high level of community organisation, interested parties frequently outnumber the voices of local residents.

Democracy
(a) A thoroughly accountable system of leadership controlled by grass-roots organization.
(b) A thoroughly accountable system of leadership controlled by grass-roots organization.

Local Democracy
(b) Local Democracy is a phrase that alludes to consultation and accountability adopted by Local Authorities and Borough Councils. This is mostly done by writing letters to, and lobbying elected Council members, and by holding them to account through political parties.

Need
(a) The requirements of a city that often catalyse planned change, and yet the beneficial, relieving results of that change are often slow or the last to manifest.
(b) The requirements of the city, such as jobs, homes, transport infrastrucutre, health and education services, utilities, power and the environment.

Ownership
(a) The condition that reveals the governance of property.
(b) The relationship governance of property. In the case of land, ownership, governance, market forces and value, all influence how the land is used. Ownership however, is the last link in the chain of deliverability. In order to implement a plan, 'buy-in' must be obtained from the landowner.

Delivery
(a) Is the last phase of the plan that straddles the planning phase with the actual change. It is when the money is spent and the plan becomes manifest.
(b) Is the process that includes setting a timeframe to implement the proposal, securing the funding to do and actually implementating the change.

Economy
(a) The financial systems that contiribute to and indicate the viability of a plan.
(b) The financial systems that contiribute to and indicate the viability of a plan. This can include global and local economies and markets.

Governance
(a) A system of control that determines the legal, physical and social conditions of space.
(b) A system of control that determines the legal, physical and social conditions of space.