A profitable appraisal does not prove you have a profitable development. It proves the development is profitable under the assumptions you entered.

The problem is that assumptions can look like facts once they’ve been entered into a spreadsheet.

A site might show an attractive return when you first assess the opportunity. But change the planning assumptions, funding cost or programme by a relatively small amount and the commercial picture starts to look different.

This is where developers need to be more critical before significant capital is committed.

Development capacity needs testing

Your appraisal depends heavily on what you expect to build.

Planning is only part of the development capacity question. 

Title restrictions, neighbouring rights, access constraints and other site-specific issues also need testing. 

Even where permission already exists, the consent needs proper assessment. What has actually been approved? What conditions need to be discharged? What planning obligations apply? Does the permitted scheme genuinely support the return you are expecting?

If the appraisal depends on an optimistic planning assumption, you need to know before committing capital.

Your programme is a financial assumption

Time is often treated as a project management issue.

For developers, time is also a finance issue.

An extended planning process can delay construction and construction delays can push completion further away.

A scheme assessed on one programme might produce a different return if completion moves by six or twelve months.

The question is not whether your programme looks achievable on paper. The question is what happens to your return when the programme slips.

Funding needs to reflect the real project

The same scrutiny applies to finance.

Lenders are unlikely to assess the acquisition price in isolation. Funding terms will reflect the scheme, the borrower, the security and the risks underlying the numbers.

Different funding structures also bring different costs and requirements.

Your financing strategy therefore needs to reflect the development you are realistically undertaking, rather than the development represented by the best-case version of your appraisal.

Challenge the assumptions before committing the capital

This is what I will be exploring during my upcoming webinar.

We will examine planning permissions, land assembly, contamination, title and neighbouring rights, sales values, build costs, funding and changing economic conditions, and how these factors affect development capacity and profitability.

If your development only works when every assumption goes your way, defend the numbers before you defend the opportunity. I will be testing those assumptions in my upcoming webinar.

Register your interest here: https://www.linkedin.com/events/7501621042897920002/