QN 3: There are two developers interested in buying a piece of land in a busy town. You have been asked to estimate the residual value for each development using the following information: • Developer’s profit: 15% • Property management fees: 1.5% of Annual Rental Income • Professional fees: 10% of Building costs • Voids & contingencies: 3% of Building costs • Advertising, marketing & sales fees: 5% of completed development • Site Acquisition fees: 2% a) Developer A wishes to develop an office building 4,000m2 gross external area (with 3,600m2 Net Internal Area). It is estimated that Building costs will be £2,500,000; Rent is £300 per m2; and the development will take 24 months. You also know that the finance rate is 9% and the developer ’s yield is 8%. estimate the residual value for each development ? (7 Marks) b) Developer B plans to develop luxury flats on the site. The developer is proposing 24 units which expected to sell at £250,000 each. It is estimated that the development period will be 18 months with development costs reaching £2,100,000. The developer ’s finance rate is 10%. (7 Marks) are c) Discuss the various techniques that can be used to estimate construction costs at the pre-contract stages, including outlining the procedures followed to arrive at fairly accurate cost reports. (6 marks)
