Development Feasibility

Report:
Kings Mead House
Contents

1.0 Executive Summary……………………………………………. 1

2.0 Oxford Market Overview……………………………………… 2

3.0 Development Site………………………………………………. 4

4.0 Planning Appraisal……………………………………………… 7

5.0 Financial Appraisal………………………………………….….11

6.0 Conclusions……………………………………………………….18
1.0 Executive Summary
Ø The Kings Mead House site is well located, with easy access to
public transport links and only a couple of minutes walk from both
the Oxford Rail Station and city centre. However the city centre
suffers from severe traffic congestion, while Park & Ride schemes,
although they have proved a success, are close to capacity.

Ø Oxford's office market is "sluggish". It is important to differentiate

between ‘city centre’ and ‘out of town’ markets. Most activity is still
out of town. However, it is our belief that no comparable space to
the client’s proposed development exists in the city centre.

Ø There are some relevant planning issues that are addressed in

section 4. However we are confident that planning permission
should be granted for such a development.

Ø The financial appraisal discovered that the development should be

both viable and profitable. Both a Residual Valuation (with
sensitivity analyses) and a Discounted Cash Flow Analysis were
undertaken.

Ø It is our recommendation that the project is a viable one on all

current information and assumptions

1
2.0 Oxford Market Overview
2.1 Location
Located roughly half-way between London and Birmingham, just off the
M40, Oxford is part of the South East region of the UK – one of the most
wealthy and most accessible areas in Europe.

Oxford has good rail and road links. London (Paddington) is less than an
hour’s train journey away, while Birmingham and other major centres such
as Reading, Bristol all enjoy regular rail services to and from Oxford.
Frequent express coach services run directly to London and Heathrow and
Gatwick Airports (via the M25).

In summary, Oxford is well located, with easy access to international

airports, the railway network, and the M40 motorway. However the city
centre suffers from severe traffic congestion, despite limited and expensive
parking, while Park & Ride schemes, although they have proved a success,
are close to capacity.

2.2 Office Market

On the whole the UK office market in 2002 saw rising availability and falling
levels of demand. This trend has continued into 2003 and the Oxford office
market has been no exception. Take-up has been slowing over the last few
years, showing similar trends as the national market. This is clearly shown
in the graph below:

Office take-up in Oxford

20

15
m2 (000s)

10

0
2000 2001 2002
Year

There is an obvious disparity between the rent figures (driven by demand)

for the Oxford City Centre and out of town office space. “Out of town” space
is generally the term used for space in the Science and Business Parks
around the city’s ring road, as this is where the vast majority of office space
outside the town centre exists. This difference is highlighted in the graph
over the page:

2
 Prime Office Rents in Oxford

250
200
Price/m2 (£)

150
100
50
0
2000 2001 2002
Year

City Centre Out-of-town

(Source: King Sturge 2003)

Grade A rental levels are now in the order of £21.00 - £22.00 per sq ft.
However this is generally for “out-of-town” space. Office availability in
Oxford City Centre remains limited to approximately 80,000 sq ft,
exclusively within second-hand stock. The City Centre continues to
experience a migration of its occupiers to the ring road.

Oxford's office market is "sluggish", sustained mainly by the region's stock

of traditional sectors, such as media and administration. Most activity is
still out of town. There is a possible current over-supply of space,
although developing with specific clients in mind could help the take-up of
space.

While all this seems to point away from a new office development in the
City Centre there has been some progress in this area: the first new office
buildings to be built in over ten years in the City Centre is being
developed by TH Kingerlee - a new 23,000 sq ft office building at 41 Park
End Street, which is likely to be completed by 2004.

The space available in the city centre simply does not have the quality of
that proposed at the Kings Mead House development, thus suggesting
that top grade office space may be something of an unknown commodity
in the immediate area. This obviously implies a degree of risk which the
developer needs to assess. Problems of traffic congestion and parking
should also be taken into consideration as they are bound to be important
issues for any potential tenant.

3
3.0 Development Site
Kings Mead House, Oxpens Road, Oxford, OX1 1RX.

Map 1: Overview of Oxford and its Transport Links.

Location of Kings Mead House.

The site on which Kings Mead House is positioned lies near the western
perimeter of Oxford City Centre, on the Oxpens Road. Oxpens Road itself
runs from the east end of the Botley Road, round the south west
perimeter of the city centre, to the north end of the Abingdon Road (the
A4144). Both of these roads lead to the Oxford Ring Road. Invaluably, the
site is extremely close to the railway station, which is under 400 metres/4
minutes walk away. There are also bus stops nearby serviced by the Park
and Ride buses amongst others.

4
Map 2: Oxpens Road

Location of Kings Mead House.

Map 3: Proposed Development Site

5
The site is currently used as office space and is owned by Royal Mail who
recently took back the space in Kings Mead House that they were leasing
to various tenants. These tenants were mostly from the technology and
education sectors. Prior to this, the building was used as a Royal Mail
sorting office for a number of years. The site is bound by a petrol filling
station to the south, Oxford Business Centre to the west, and Richard
Gray Court (residential) to the north.

Kings Mead House: Pedestrian Entrance.

The plot is roughly 1,412m² in area. There is currently very limited on-site
parking and very small entrance for vehicles.

The existing building was constructed about 1990 and is of medium to low
spec. The last known asking rent for the space was £16.50/ft² (or
£177.50/m² (Cluttons Oct 2003). This low rent even for Oxford City
Centre reflects the current lack of demand for office space but more
importantly the unattractiveness of the current building due to poor
maintenance, low grade space and severe lack of parking.

6
4.0 Planning Appraisal

4.1 Local Plan

For developments to receive planning permission it is necessary for them
to fall within the Core and Economic Policies of the Oxford Local Plan. The
relevant Local Plan is the Second Draft Oxford Local Plan 2001-2016,
which was deposited in February 2003.

The Core Policies form the nucleus of the Oxford Local Plan and define the
City Council’s strategy with regards to the promoting and controlling of
development throughout Oxford. In addition, the City Council will need to
be satisfied that proposals for development will not have unacceptable
environmental impacts. Also, Economic Policies exist which are designed
to encourage sustainable development, strengthen existing employment
sectors and regenerate existing employment uses within Oxford.

It is the appraiser’s belief that the proposed development does fall within
these policies and would be granted planning permission for the reasons
laid down below, where the relevant Core and Economic Policies have
been appraised.

Core Policies

4.1.1 Core Policy 2 – Development Proposals

“Planning permission will only be granted for development which:
a. shows a high standard of design, including landscape treatment,
that respects the character and appearance of the area; and
b. uses materials of a quality appropriate to the nature of the
development, the site and its surroundings; and
c. is acceptable in respect of access, parking, highway safety, traffic
generation, pedestrian and cycle movements including, where
appropriate, links to adjoining land; and
d. provides buildings and spaces with suitable access arrangements
and facilities for use by people with disabilities.”

Providing that the proposed development shows a high standard of design

(which the client implies that it does), point (a) should not be a
particularly difficult requirement to meet as the surrounding character and
appearance of the area is not especially breathtaking. The Oxpens Road
as a whole is run down and has in fact been a target for redevelopment
for some time. The area that the local government has targeted in fact
lies further down Oxpens Road to the south of Kings Mead House.
Similarly with points (b) and (d), a high spec, well designed office building
should fit under these requirements adequately. With regards to point (c),
traffic generation should not be greatly increased, as the current building
is still under occupation. Pedestrian and cycle movements should still
remain under acceptable limits.

7
Core Policy 2 also states that:

“Where relevant, development proposals will be also required to:

e. retain and protect important landscape and ecological features, and

provide for further landscape treatment where appropriate to the
nature of the area or to safeguard the local amenity; and
f. retain important open spaces of recreational or amenity value or
both; and
g. preserve or enhance the special character and setting of listed
buildings and conservation areas; and
h. preserve the site and setting of Scheduled Ancient Monuments or
sites of special local archaeological significance; and
i. safeguard public rights of way and the amenities of adjoining land
users and occupiers, including the provision of alternative rights of
way of equal or enhanced quality.”

Given the existing nature of the Oxpens Road area, it is highly unlikely
that points (e) to (i) are relevant to the proposed development: there are
no obvious important landscape or ecological features of the site, nor are
there spaces of important recreational or amenity value. Likewise, there is
no listed building or conservation area on site, ditto for ancient
monuments or items of special archaeological significance. Public rights of
way are not really an issue either as the site is bound on all sides.

4.1.2 Core Policy 4 – Limiting the need to travel

Whilst there will not be an unreasonably large increase in the amount of
people traveling to and from the development, there will still be a rise in
pedestrian and vehicular flow. Because the site is so close to major public
transport links (see page 4, bottom), it can be assumed that the majority
of employees will use these public links. For those that live outside of the
scope of public transport, an increased number of car parking spaces will
be available, though the proposed development is not so huge a number
as to dramatically increase the number of vehicles in the area.

The office development would try and encourage a local work force from
residents within Oxford so the need to travel long distances would be
significantly reduced.

4.1.3 Core Policy 7A - Efficient Use of Land & Density

“Planning permission will only be granted where development proposals
which make maximum and appropriate use of land.”

Particularly relevant are points (b) & (e) of CP7A:

b. “the scale of development, including building heights and massing,

should be at least equivalent to the surrounding area, although

8
 larger-scale proposals will be encouraged in appropriate
locations.”
e. “parking levels must be appropriate to the use proposed.”

The fact that the proposed development consists of 5 stories above the
ground means that it surpasses the equivalent of the surrounding area.
The density efficiency is more than adequate and the car parking (20
spaces) should be appropriate in that most workers will be expected to
use the good public transport linkage of the site.

4.1.4 Core Policy 15 – Public Art

“The City Council will seek the provision of public art in association with
major developments (2010 or more dwellings, or for more than 2,000m²
floor space). Public art must be incorporated within the development site,
or be provided near to the development.
Where appropriate the City Council will seek the provision of public art,
which will be secured by a planning condition or planning obligation.”

Whilst the terminology used here is not as strict as elsewhere in the plan,
the proposed development (at 3000m² floor space) falls under the
category of ‘major developments’. Therefore it would be wise to allow for
the provision of 1% of construction costs for public art.

4.1.5 Core Policy 16 – Energy Efficiency.

The client was unclear in its instruction whether or not the proposed
development contained such provisions so as to “maximise the benefits of
passive solar (or natural) heating, cooling, lighting and natural ventilation”.
However, as the office development is going to be of the highest quality, it
can be assumed that the building will be energy efficient and thus satisfy
this core policy.

Economic Policies

4.1.6 Policy EC1 – Sustainable Employment

“The City Council will seek to maintain, strengthen, modernise and
diversify a sustainable economic base for Oxford. Employment growth
related to major commercial developments, that will attract a significant
number of additional people to Oxford, will only be granted planning
permission where:

a. there are exceptional and important benefits to Oxford and its

local workforce; and
b. it can be demonstrated that additional pressure will not be placed
on the existing housing stock and transport infrastructure.”

It is the appraiser’s belief that the proposed development will comply with
the above policy as long as the tenants that take up space in the new
building employ from within the local area. As well as this, it is imperative

9
that the majority of the workforce make use of the excellent transport
links. This is likely as there will not be enough car parking to cater for
everyone in the building, and most sensible employees would use the bus
or the train because of the traffic congestion in and around Oxford.

4.1.7 Policy EC3 – Modernising Existing Employment Sites

“Planning permission will be granted for development that modernises
existing employment generating sites.” The policy goes on to list a
number of relevant criteria, all of which need to be taken into account.
These include many statements that have already been outlined in the
plan and it is our belief that the proposed development complies will all of
them, with one notable exception:

h. the overall number of car parking spaces should not be increased

but either maintained or reduced.

The existing car parking on the site is extremely limited and therefore the
proposed development – with 20 spaces (about 13 more than on the
existing site) - unfortunately does not comply with this requirement. It is
arguable how stringently the planning authorities would enforce this point
as, in relation to the space, being created (almost four times as much as
the existing building) the car parking is not an unreasonable amount. In
fact, the local plan’s guidelines are for 1 car parking space for every 35m²
or 2 people. There is 3000m² of usable space proposed which would equal
roughly 88 car parking spaces – well above the proposed 20.

The proposed level of Car Parking is however the chief concern with
regards to the granting of planning permission that we believe exists.

4.2 Planning History

The only available planning history that was found for Kings Mead House
was barely relevant and consisted of an application for the erection of two
temporary advertising hoardings and an application for the installation of
condenser units on an existing external balcony at 1st floor level on the
south elevation.

As the current use of the site is for an office building, it is our belief that,
providing that the proposed development complies with all of the
requirements of the local plan which, as shown above, we think it does
with one exception, there should be little difficulty with acquiring planning
permission.

The client should consider assessing the importance of the stated amount
of car parking to the development, as we are confident that without that
provision the development would very probably be granted planning
permission.

10
 5.0 Financial Appraisal
The valuations below were undertaken in accordance with the guidelines
set out in Guidance Note 17 in the RICS Red Book. This outlines the
approach to a residual calculation in which the expected development cost
to create the scheme is subtracted from the expected capital value on
completion of the project in order to derive the expected profit.

5.1 Residual Valuation

Expected Realisation
ERV

Net Offic e Area 3,000 m² @ £215 /m² £645,000.00

Car Parking Spac es 20 @ £2,500 /c ps £50,000.00
Total Income £695,000.00

Capitalised @ 7% 14.28571429 £9,928,571.43

Less Purc hasers Costs 5% £496,428.57
Less Rental Inc entive 6 months £322,500.00
Net Realisation Value £9,109,642.86

Development Costs

Demolition £25,000.00
Construc tion Costs -
Offic e 3,333.33 m² @ £1,550 /m² £5,166,666.67
Car parking 400 m² @ 275 /m² £110,000.00
Financ e on Construc tion £5,301,666.67 0.5 £2,650,833.33
& Demolition 7.25% 1.75 0.130304031 £345,414.27

Fees £5,301,666.67 10% £530,166.67

Financ e on Fees £530,166.67 0.66 £349,910.00
7.25% 2 0.15025625 £52,576.16

Agenc y Fees Letting £695,000 @ 10% £69,500.00

Sale £9,432,143 @ 1.5% £141,482.14

Marketing £75,000.00
Public Art 1% Build Costs £53,016.67
Contingenc y 5% Build c osts £265,083.33
Sub-Total £6,833,905.91
Developer's Profit 15% TDC £1,025,085.89
Total Development Cost £7,858,991.80

Residual Value ERV-TDC £1,250,651.06

SUM AVAILABLE TODAY £1,035,505.13

Land = 1
Purc h Cost 0.05
Interest Rate 7.25%
Holding Period (24 mths) 2

5.2 Assumptions
Ø The assumed investment yield for this project is assumed to be 7%.
This is based on various comparables from the Oxford market.

11
Ø I have assumed that for the purposes of this valuation that the space
will be filled on completion.
Ø There is a Rental incentive of 6 months rent free. This is in order to
increase attractiveness to various tenants.
Ø Rent at £215/m². It is very hard to find comparables for top quality
office space in Oxford City Centre due to the simple fact that not a lot
exists. A number of specialists were consulted and the advice was that
while the average standard office space in the centre is about £190 -
£200/m² (or c.£18.50 - £19.50/ft²), a development of this nature
would well fetch that level of rent.
Ø Purchaser’s costs are assumed to be 5% - 4% stamp duty and 1% legal
fees. This is standard for a development of this nature.
Ø A 21 month construction period with 3 months prior planning has been
assumed on the advice of the client.
Ø Construction costs are assumed to be £1,550/m². This a lot higher than
average due to high spec, a/c. Taken from Wessex Building Prices
Guide. It can only be a general guide to the level of building prices and
professional interpretation is always necessary. Average price/m² for
general offices for a five storey building is £1,090/m². However,
Wessex recommends a factorisation of 1.09 for the region, which gives
£1,188/m². The fact that the proposed development will be of the
highest quality will increase the costs dramatically. Our professional
judgement has led us to adopt the figure of £1,550/m² for the building.
We recommend, however, that for a more in depth analysis a Quantity
Surveyor be consulted.
Ø £275/m²Car Parking construction costs are also taken from Wessex.
This is the average given by the guide multiplied by the factorisation
given for construction in the region. Each car park space is assumed to
take up 20m² - the size the existing car parking spaces. Again, we
recommend, however, that for a more in depth analysis a Quantity
Surveyor be consulted.
Ø The interest rate has been assumed to be 3.25% over base rate
(3.75%). This gives us an interest rate of 7%.
Ø Fees are assumed at 10% of construction costs. This is a typical
amount used on comparable projects
Ø Marketing costs of £75,000. This amount is assumed on the advice of
various specialist marketing companies in the area, who suggested that
this amount would be appropriate for a development of this nature.
Ø 5% of construction cost has been set aside as a contingency sum, on
the assumption that on the current state of information, this will be the
normal allowance.
Ø The provision for Public Art, sought by the council for any major
commercial development over 2000m² is assumed to be 1% of the
construction costs.

12
5.3 RV Results

The result of the valuation suggests that the client should bid up to
£1,085,985.95 for the site in order to meet the targets for return that
have been set. It is debatable whether this is an amount for which the site
can be bought as a piece of real estate of over £1,400m² in Oxford City
Centre.

This suggests that the development project may not be financially viable.
However the result is far from conclusive in either direction. It should be
noted that, while a residual valuation can go some way to assist in the
decision-making process with regards to going ahead with development, it
is nowhere near 100% reliable.

The assumptions made strongly influence the estimated figure. Many of

these assumptions can be subject to possible change. These potential
changes in, for example, rent values, interest rates, investment yields,
can alter the figures, sometimes dramatically. Because of this, different
sensitivity analyses have been run. An optimistic and a pessimistic
sensitivity analysis are below:

13
 Sensitivity Analysis - Optimistic
Expected Realisation
ERV

Net Offic e Area 3,000 m² @ £225 /m² £675,000.00

Car Parking Spac es 20 @ £2,750 /c ps £55,000.00
Total Income £730,000.00

Capitalised @ 7% 14.28571429 £10,428,571.43

Less Purc hasers Costs 5% £521,428.57
Net Realisation Value £9,907,142.86

Development Costs

Demolition £25,000.00
Construc tion Costs -
Offic e 3,333.33 m² @ £1,450 /m² £4,833,333.33
Car parking 400 m² @ 250 /m² £100,000.00
Financ e on Construc tion £4,958,333.33 0.5 £2,479,166.67
& Demolition 7% 1.75 0.125697265 £311,624.47

Fees £4,958,333.33 10% £495,833.33

Financ e on Fees £495,833.33 0.66 £327,250.00
7% 2 0.1449 £47,418.52

Agenc y Fees Letting £730,000 @ 10% £73,000.00

Sale £9,907,143 @ 1.5% £148,607.14

Marketing £65,000.00

Contingenc y 5% Build c osts £247,916.67

Sub-Total £6,347,733.47
Developer's Profit 15% TDC £952,160.02
Total Development Cost £7,299,893.49

Residual Value ERV-TDC £2,607,249.37

SUM AVAILABLE TODAY £2,205,828.08

Land = 1
Purc h Cost 0.05
Interest Rate 7%
Holding Period (21 mths) 1.75

In the above sensitivity analysis, a number of assumptions have been

changed:

Ø Rent increased by £10/m² to £225/m².

Ø No Rental Incentive.
Ø Interest rates decreased by a ¼ of a percentile to 7%.
Ø Construction costs decreased by £100/m² to £1,450 for the offices
and by £25/m² to £250/m² for car parking.
Ø Marketing Costs reduced by £10,000.
Ø No public Art provision was required.

As is shown, the end figure as changed by a huge amount. On the basis of

this valuation, the advice to the client would be that the development is
most definitely financially viable. Conversely all of these alterations that
have been made can change for the worse, as shown below.

14
 Sensitivity Analysis – Pessimistic
Expected Realisation
ERV

Net Office Area 3,000 m² @ £205 /m² £615,000.00

Car Parking Spaces 20 @ £2,000 /cps £40,000.00
Total Income £655,000.00

Capitalised @ 7% 14.28571429 £9,357,142.86

Less Purchasers Costs 5% £467,857.14
Less Rental Incentive 12 months £615,000.00
Net Realisation Value £8,274,285.71

Development Costs

Demolition £25,000.00
Construction Costs -
Office 3,333.33 m² @ £1,650 /m² £5,500,000.00
Car parking 400 m² @ 300 /m² £120,000.00
Finance on Construction £5,645,000.00 0.5 £2,822,500.00
& Demolition 7.5% 2 0.155625 £439,251.56

Fees £5,645,000.00 10% £564,500.00

Finance on Fees £564,500.00 0.66 £372,570.00
7.5% 2.75 0.220037773 £81,979.47

Finance on void £6,753,211.62 7.0% 0.5 0.034408043 £232,364.80

Agency Fees Letting £655,000 @ 10% £65,500.00

Sale £8,889,286 @ 1.5% £133,339.29

Marketing £85,000.00
Public Art 1% Build costs £56,450.00
Contingency 5% Build costs £282,250.00
Sub-Total £7,585,635.12
Developer's Profit 15% TDC £1,137,845.27
Total Development Cost £8,723,480.39

Residual Value ERV-TDC -£449,194.67

SUM AVAILABLE TODAY -£357,045.97

Land = 1
Purch Cost 0.05
Interest Rate 7.5%
Holding Period (30 mths) 2.5

In the above sensitivity analysis, a number of assumptions have been

changed:

Ø Rent decreased by £10/m² to £205/m².

Ø Rental Incentive increased by 6 months to 12 months.
Ø Interest rates increased by a ¼ of a percentile to 7.5%.
Ø Construction costs increased by £100/m² to £1,650 for the offices
and by £25/m² to £300/m² for car parking.
Ø Marketing Costs increased by £10,000.
Ø The construction period increased to 27 months.
Ø A 6 month void period at the end of construction was introduced.

Again, the final sum as altered a huge amount, this time to a negative
amount. On this evidence the advice to the client would be that the
development is definitely not financially viable.

15
 5.4 Discounted Cash Flow (DCF)
The true valuation will lie somewhere in between these two optimistic and
pessimistic figures. A method that can help us further assess the financial
viability of the project is the Discounted Cash Flow Method (DCF). This has
advantages over the Residual Method because the cash flows are added
up over a monthly period. This allows the timing of receipts and
expenditure to be accurately allocated to each month. Also the points of
cash flow risk can be more easily identified.

Month Build Costs Contingency Fees Land Marketing Sale Letting & Expenditure Discount DCF
5% Sale Fees per month Factor
0 -£1,035,505 -£1,035,505 1.000 -£1,035,505
1 £0 0.994 £0
2 -£212,067 -£212,067 0.988 -£209,607
3 -£25,000 -£25,000 0.983 -£24,566
4 -£53,771 -£2,689 -£56,460 0.977 -£55,158
5 -£92,779 -£4,639 -£97,418 0.971 -£94,618
6 -£106,033 -£5,302 -£111,335 0.966 -£107,506
7 -£132,542 -£6,627 -£159,050 -£298,219 0.960 -£286,288
8 -£159,050 -£7,952 -£30,000 -£197,002 0.954 -£188,021
9 -£238,575 -£11,929 -£250,504 0.949 -£237,693
10 -£265,083 -£13,254 -£278,337 0.943 -£262,567
11 -£397,625 -£19,881 -£417,506 0.938 -£391,560
12 -£477,150 -£23,857 -£501,007 0.932 -£467,140
13 -£477,150 -£23,857 -£106,033 -£607,041 0.927 -£562,714
14 -£477,150 -£23,857 -£501,007 0.922 -£461,722
15 -£477,150 -£23,857 -£22,500 -£523,507 0.916 -£479,652
16 -£477,150 -£23,857 -£501,007 0.911 -£456,367
17 -£397,625 -£19,881 -£417,506 0.906 -£378,094
18 -£265,083 -£13,254 -£15,000 -£293,337 0.900 -£264,102
19 -£238,575 -£11,929 -£250,504 0.895 -£224,226
20 -£159,050 -£7,952 -£53,017 -£220,019 0.890 -£195,794
21 -£132,542 -£6,627 -£7,500 -£146,669 0.885 -£129,760
22 -£106,033 -£5,302 -£111,335 0.880 -£97,927
23 -£92,779 -£4,639 -£97,418 0.874 -£85,188
24 -£53,771 -£2,689 £9,109,643 -£210,982 £8,842,201 0.869 £7,687,158
TOTAL -£5,301,667 -£530,167 -£1,035,505 -£75,000 £1,692,489 NPV = £991,381
IRR= 1.651% per mth
IRR= 19.811% p.a.

The DCF above shows the Net Present Value to be well over 0 (i.e. the
break even point). This means that the project is acceptable in pure
financial terms. The IRR calculated is 19%, which is well above the
required yield (7%). This indicates that the project is acceptable.

Again this method, like all valuations, is only as good as the variables it
relies upon. Any significant change in the interest rates, yield or rent could
affect the result dramatically, as shown in the previous section with the
sensitivity analysis.

16
 Interestingly, according to the DCF chart, the maximum amount that the
land could be purchased for and still turn a profit (i.e. have a NPV of
greater than 0) is £2,026,885:

Month Build Costs Contingency Fees Land Marketing Sale Letting & Expenditure Discount DCF
5% Sale Fees per month Factor
0 -£2,026,885 -£2,026,885 1.000 -£2,026,885
1 £0 0.994 £0
2 -£212,067 -£212,067 0.988 -£209,607
3 -£25,000 -£25,000 0.983 -£24,566
4 -£53,771 -£2,689 -£56,460 0.977 -£55,158
5 -£92,779 -£4,639 -£97,418 0.971 -£94,618
6 -£106,033 -£5,302 -£111,335 0.966 -£107,506
7 -£132,542 -£6,627 -£159,050 -£298,219 0.960 -£286,288
8 -£159,050 -£7,952 -£30,000 -£197,002 0.954 -£188,021
9 -£238,575 -£11,929 -£250,504 0.949 -£237,693
10 -£265,083 -£13,254 -£278,337 0.943 -£262,567
11 -£397,625 -£19,881 -£417,506 0.938 -£391,560
12 -£477,150 -£23,857 -£501,007 0.932 -£467,140
13 -£477,150 -£23,857 -£106,033 -£607,041 0.927 -£562,714
14 -£477,150 -£23,857 -£501,007 0.922 -£461,722
15 -£477,150 -£23,857 -£22,500 -£523,507 0.916 -£479,652
16 -£477,150 -£23,857 -£501,007 0.911 -£456,367
17 -£397,625 -£19,881 -£417,506 0.906 -£378,094
18 -£265,083 -£13,254 -£15,000 -£293,337 0.900 -£264,102
19 -£238,575 -£11,929 -£250,504 0.895 -£224,226
20 -£159,050 -£7,952 -£53,017 -£220,019 0.890 -£195,794
21 -£132,542 -£6,627 -£7,500 -£146,669 0.885 -£129,760
22 -£106,033 -£5,302 -£111,335 0.880 -£97,927
23 -£92,779 -£4,639 -£97,418 0.874 -£85,188
24 -£53,771 -£2,689 £9,109,643 -£210,982 £8,842,201 0.869 £7,687,158
TOTAL -£5,301,667 -£530,167 -£2,026,885 -£75,000 £701,109 NPV = £1
IRR= 0.585% per mth
IRR= 7.020% p.a.

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6.0 Conclusions
Having examined the planning situation and restraints within the Oxford
Local Plan, and the combined financial feasibility reports, it is our belief
that the proposed development on the Kings Mead house Site is a viable
and profitable project to undertake.

The only slight problem with planning could be the fact that a slightly
larger amount of car parking spaces will exist. However, in perspective of
the whole development, this should not be regarded as a major issue.
Even if it is a problem, the rules are not rigid: planning is always open to
negotiation. With regards to the valuations, the project seems viable from
both, although the Residual Valuation gives a sum that would not be able
to buy the land. However, the DCF analysis shows that the land can be
purchased for upwards of £2m and still turn a profit.

It is therefore our advice that the project is, on current evidence and
assumptions, worth pursuing.

***********************************************************
Our report and valuation is for the use only of the party to whom it is addressed and no
responsibility is accepted to any third party for the whole or any part of its contents. If our
opinion of value is disclosed to persons other than the addressees of this report, the basis
of valuation should be stated. If it is proposed to publish the figure, the form and context
in which the figure is to appear should be approved by us beforehand.

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