Faculty of Environment and Technology

Academic Year: 2022/2023

End of Teaching Block or Date: 1

Module Leader: Nalumino Akakandelwa

Module Code UBLMXS-15-2
Module Title: DEVELOPMENT AND DESIGN ECONOMICS
Examination Duration: 24-Hour Online Access Window

ONLINE EXAM
Instructions to Students:
• Students must answer FOUR questions in total: Students must answer TWO questions from Section A
AND TWO questions from Section B.
• An extract of Valuation Tables has been provided at the end of the Exam paper.
• As is usual for an exam, for this assessment you are not expected to include full referencing, but are
encouraged to cite the sources of key theories, models, case studies, statutes etc.
• This is an individual assessment: do not copy and paste work from any other source or work with any
other person during this exam. Text-matching software will be used on all submissions.
• Total marks available: 100.

Formatting
Please use the Word file format. We cannot ensure that other formats are compatible with markers’
software and cannot guarantee to mark incorrect formats.
Please include the module name and number and your student number (not your name). Preferably
name your file in the format:

UBLMXS-15-2-StudentID.docx

Please indicate clearly which questions you are answering.

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You must submit your assignment before the stated deadline by electronic submission through Blackboard.
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your work frequently.
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There is no late submission permitted on this timed assessment.

Page 1 of 5
SECTION A

1. Explain the concept of value in the context of development and construction. Describe the
techniques that different clients might use to establish and measure the value of a proposed
project to their core business and identify the main costs that need to be established in the
appraisal of that project.
(25 marks)

2. “The cost of constructing a project is driven by its function, form and location”.

Discuss this statement using examples to illustrate your answer.

(25 marks)

3. “Risk is an uncertain event or set of circumstances that should it or they occur would have an
effect on the achievement of one or more project objectives” APM Body of Knowledge, APM,
2012
Describe and explain the sources of risk and their consequences that could potentially
threaten the commercial success of a development project and explain how these might be
most effectively analysed and managed.
(25 marks)
4. A design team you are working with has identified two potential solutions for the design of
the roof in a proposed project and has requested your advice as to which option will provide
maximum economic value to the client over the life of the project.

a) Using the data below and assuming a discount rate of 6% (see discount factors contained in
Appendix 1), establish the whole life cost of each of the following two design options.

Assumed building life 40 years

Costs OPTION 1 OPTION 2

Capital cost £120,000 £170,000

Planned life of roof 20 years 40 years

Periodic maintenance cost (every 10 years) £8,000 £10,000

Replacement cost £140,000 £190,000

Annual energy savings Nil -£1000

(15 marks)
b) Recommend the option which will provide maximum value to the client and outline the
factors that might impact on the accuracy of this comparison.
(10 marks)
(Total 25 marks)

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SECTION B

5. Outline and discuss the differences between site valuation and development appraisal
processes and explain the usefulness of each of the processes in real estate development and
investment analysis.
(25 marks)
6. A brownfield site located in the city centre of Bristol has outline planning permission for the
development of an industrial distribution centre with a gross internal floor area of 4,600m 2.
Local market evidence suggests that rents for similar units would be £160/m 2 and that
investment yields would be in the region of 9%. The site is available for purchase at
£1,350,000. Your client has expressed interest in acquiring the site conditional to the
development achieving at least 20% profit on cost.

It is anticipated that construction costs will be £850/m2. A provisional sum of £200,000 has
been estimated for necessary site preparation and infrastructure costs. The construction
period is estimated to be six months, with a lead period of three months to obtain planning
permission. There is great interest from logistics occupiers for such a development. It is
therefore expected that a pre-let agreement could be achieved. It is further assumed that:

• Interest rate 8%
• Purchase costs 5%
• Sales agent and legal fee 2%
• Land acquisition costs 6%
• All Professional fees (% of construction costs) 12.5%
• Space efficiency 100%
• Scheme will be fully let and sold at end of construction.
As a development analyst, advise your client on the project’s feasibility referring to:
i) Profit on Cost
ii) Profit on Gross Development Value
iii) Rental Cover
iv) Profit Erosion
Show all your workings. Clearly state and justify any additional assumptions you have made.
(25 marks)
7. A housing developer has identified a greenfield site on the fringe of Frenchay and intends to
acquire the land at a negotiated priced. The site has planning permission for 150 residential
units comprising:

Type No. Unit Size (m2) Sale Price (£)

2-Bedroom Units 75 60 250,000
3-Bedroom Units 50 95 375,000
4-Bedroom Units 25 150 460,000

Prepare a residual land valuation to evaluate the freehold value of the site. You should use the
information provided below and clearly state any assumptions you have made to complete
the evaluation.

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 • Gross: Net Floor area 100%
• Purchase costs 6%
• Construction costs £1,300/m2
• Roads, services, car parking £90,000 lump sum
• Landscaping £50,000 lump sum
• S106 Fees £70/m2 (GIA)
• Professional Fees 10% of construction costs
• Marketing Fees £50,000
• Sales Agents Fees 0.50% of GDV
• Sales Solicitor’s Fees 0.25% of GDV
• Project Management Fees 4% of construction cost
• Planning Cost & Fees £50,000
• Investment Yield 7% p.a.
• Bank Interest 8% p.a.
• Land Acquisition Fees 5%
• Developer’s profit 20% on cost
• Construction period 15 months

Clearly state any assumptions made.

(25 marks)
8. A property owner has a freehold interest in a four-storey 3,000m2 (NIA) secondary office block
located in a city centre. There is a recent increase in demand for secondary office space in the
city centre area and market research shows that current rental values for secondary office is
£180/m2 per annum. Yields on secondary office investments in the area are currently 8%.

Research has shown that the local authority would allow re-developments in the area up to
seven floors and that a re-design of the floor plate would give a gross internal area of 6,000m 2
on the site. Current market rents for Grade ‘A’ office buildings are £340/m2 and yields on
such buildings are 6%.
Construction costs for Grade ‘A’ buildings in this location are £2,200/m2. It is anticipated that
the demolition of the existing building would be in the region of £300,000. The property
owner has secured financing on the scheme at an interest rate of 7%. The following are also
expected:

• Developer’s profit 20% on cost

• Purchase costs 5%
• Sales agent and legal fee 2%
• Land acquisition costs 6%
• Net floor area for proposed development 90%
• Construction period will be 15 months with a 6-month lead period for securing planning
permission

Advise the property owner as to whether or not they should undertake a re-development of this
site. Please show all your workings and clearly state and justify any additional assumptions you
have made. (25 marks)

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APPENDIX 1
Present value of future payments and annual equivalents of a present payment
assuming given discount rates

PV of £1 YP of £1 (Single Rate, Arrears)

n\i 5% 6% 7% 8% 9% 10.0% n\i 5% 6% 7% 8% 9% 10.0%
1 0.9524 0.9434 0.9346 0.9259 0.9174 0.9091 1 0.9524 0.9434 0.9346 0.9259 0.9174 0.9091
2 0.9070 0.8900 0.8734 0.8573 0.8417 0.8264 2 1.8594 1.8334 1.8080 1.7833 1.7591 1.7355
3 0.8638 0.8396 0.8163 0.7938 0.7722 0.7513 3 2.7232 2.6730 2.6243 2.5771 2.5313 2.4869
4 0.8227 0.7921 0.7629 0.7350 0.7084 0.6830 4 3.5460 3.4651 3.3872 3.3121 3.2397 3.1699
5 0.7835 0.7473 0.7130 0.6806 0.6499 0.6209 5 4.3295 4.2124 4.1002 3.9927 3.8897 3.7908
6 0.7462 0.7050 0.6663 0.6302 0.5963 0.5645 6 5.0757 4.9173 4.7665 4.6229 4.4859 4.3553
7 0.7107 0.6651 0.6227 0.5835 0.5470 0.5132 7 5.7864 5.5824 5.3893 5.2064 5.0330 4.8684
8 0.6768 0.6274 0.5820 0.5403 0.5019 0.4665 8 6.4632 6.2098 5.9713 5.7466 5.5348 5.3349
9 0.6446 0.5919 0.5439 0.5002 0.4604 0.4241 9 7.1078 6.8017 6.5152 6.2469 5.9952 5.7590
10 0.6139 0.5584 0.5083 0.4632 0.4224 0.3855 10 7.7217 7.3601 7.0236 6.7101 6.4177 6.1446
11 0.5847 0.5268 0.4751 0.4289 0.3875 0.3505 11 8.3064 7.8869 7.4987 7.1390 6.8052 6.4951
12 0.5568 0.4970 0.4440 0.3971 0.3555 0.3186 12 8.8633 8.3838 7.9427 7.5361 7.1607 6.8137
13 0.5303 0.4688 0.4150 0.3677 0.3262 0.2897 13 9.3936 8.8527 8.3577 7.9038 7.4869 7.1034
14 0.5051 0.4423 0.3878 0.3405 0.2992 0.2633 14 9.8986 9.2950 8.7455 8.2442 7.7862 7.3667
15 0.4810 0.4173 0.3624 0.3152 0.2745 0.2394 15 10.3797 9.7122 9.1079 8.5595 8.0607 7.6061
16 0.4581 0.3936 0.3387 0.2919 0.2519 0.2176 16 10.8378 10.1059 9.4466 8.8514 8.3126 7.8237
17 0.4363 0.3714 0.3166 0.2703 0.2311 0.1978 17 11.2741 10.4773 9.7632 9.1216 8.5436 8.0216
18 0.4155 0.3503 0.2959 0.2502 0.2120 0.1799 18 11.6896 10.8276 10.0591 9.3719 8.7556 8.2014
19 0.3957 0.3305 0.2765 0.2317 0.1945 0.1635 19 12.0853 11.1581 10.3356 9.6036 8.9501 8.3649
20 0.3769 0.3118 0.2584 0.2145 0.1784 0.1486 20 12.4622 11.4699 10.5940 9.8181 9.1285 8.5136
25 0.2953 0.2330 0.1842 0.1460 0.1160 0.0923 25 14.0939 12.7834 11.6536 10.6748 9.8226 9.0770
30 0.2314 0.1741 0.1314 0.0994 0.0754 0.0573 30 15.3725 13.7648 12.4090 11.2578 10.2737 9.4269
35 0.1813 0.1301 0.0937 0.0676 0.0490 0.0356 35 16.3742 14.4982 12.9477 11.6546 10.5668 9.6442
40 0.1420 0.0972 0.0668 0.0460 0.0318 0.0221 40 17.1591 15.0463 13.3317 11.9246 10.7574 9.7791
45 0.1113 0.0727 0.0476 0.0313 0.0207 0.0137 45 17.7741 15.4558 13.6055 12.1084 10.8812 9.8628
50 0.0872 0.0543 0.0339 0.0213 0.0134 0.0085 50 18.2559 15.7619 13.8007 12.2335 10.9617 9.9148
55 0.0683 0.0406 0.0242 0.0145 0.0087 0.0053 55 18.6335 15.9905 13.9399 12.3186 11.0140 9.9471
60 0.0535 0.0303 0.0173 0.0099 0.0057 0.0033 60 18.9293 16.1614 14.0392 12.3766 11.0480 9.9672
Perp 20 16.6667 14.2857 12.5 11.1111 10

END OF QUESTION PAPER

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