Spreadsheet Appraisal Development Assignment

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.

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

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.

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