Community Infrastructure Levyand Development Appraisals

Presentation to Squires, Sanders (UK) LLP

by Vail Williams LLP

Chris Cave, Partner, Development ConsultancyJames Lacey, Partner, Planning Consultancy

Thursday 19 January 2012

Vail Williams LLP

• Chris Cave – Partner: Responsible for Birmingham office and the firm’s Development Consultancy team - based in Birmingham. 30 years experience of retail, office, industrial, leisure and residential developments.

• James Lacey – Partner: Leads Planning team – based in Reading 12 years of representing commercial and residential developers and corporate and private landowners

Who are we?

Planning and Development – What we will cover

• The new Community Infrastructure Levy (CIL) and comparison with S106 costs and its implications on the development process.

• How the CIL is being introduced and the process?• Development appraisals what are they and how are they

used?• What are the basics?

• Where is the market today and how does Development Consultancy and the appraisal system play its part?

• Example of the difference between CIL and S106 and the implications on development viability.

Planning - CIL

• “CIL” – Background • The process• Emerging figures• Current consultations

Community Infrastructure Levy (‘CIL’) Background

“CIL” came into force in April 2010. Allows LA’s in England & Wales to:

3. Raise an estimated additional £1 billion a year of funding for local infrastructure by 2016 (source: ‘CIL’ an overview 2011, CLG)

5. Deliver funding for a wide range of infrastructure projects (in addition to affordable housing or, SPA contributions)

7. Funds: safer road schemes, flood defences, schools, hospitals and other health and social care facilities, play areas, parks, green spaces, district heating systems, police stations, leisure centres and other community safety facilities.

The Process

• MUST HAVE UP TO DATE CORE STRATEGY thereafter they can prepare a charging schedule rate(s) per sq.m.

• Consultation on the charging schedule – lack of engagement

• Rates must be supported by evidence which relates to the viability of new development – lack of input into the two examinations to date

• Examination to ensure the rates support rather than harm new development. Binding report – Newark & Sherwood and Shropshire only two.

The aim

‘Creates a fairer and transparent system to ensure proportionate levels of contributions are paid on developments of 100 sq.m. or more.’ (CLG guidance) (net gain)

Proposed Levy Charges Per m2 Of Development

Phase 1 – Emerging “CILs”

£105

£105

£53 for all in-centre projects of less

than 280 sq metres

£0

£0

£105

£0£0£0£120£70Assembly and Leisure

£100 - £125£0£100; £0 in Roehampton

£120£70Large Retail / Supermarkets

£75 - £100 for schemes under 500 sq metres

£0£100; £0 in Roehampton

£120£70Small Retail

£0 - £20£0£0£0 - £20£70Business / Industrial / Warehouses

£0£0£100; £0 in Roehampton

£20 inside the metropolitan centre

of the Borough;

£0 elsewhere

£70Offices

£0 - £75£40 in towns or

£80 in rural areas

£250; £265 - £575 in the Vauxhall

Nine Elms Battersea

opportunity area;

£0 in Roehampton

£0 - £120£70 Residential

Development

Class

Local Authority Charge Variations (Residential)

Current consultation

So what does this mean for the developer?

• The responsibility to pay the levy runs with the ownership of the land. Developers / landowners need to be made aware of the ‘CIL’ contributions which are emerging.

• The “CIL” would be payable upon the commencement of development and would exclude SPA , affordable housing etc which are in addition.

Development Appraisals – Who are they for? What are they?

• Land Owners – Usually a residual appraisal to produce a site value.

• Developers – a means of targeting and tracking profit and negotiating S106 and CIL contributions. Means of presenting and tracking development viability and non viability.

The Basics - what’s needed?

• Scheme – what is it, floor areas, etc?

• Values – research into yields rents capital values

• Costs - - Planning- S106/S278 (CIL)- Build Costs and Professional Fees- Marketing Promotion- Voids/Disposal Assumptions- Finance

What else?

• Local Authority Planning Application Fee's• Flood Risk Assessment• Topographical Surveys• Geotechnical Surveys• Sustainability• Highways• Bats, Newts, Badgers, etc

Rubbish In/Rubbish Out

• The valuer should not assume the answer is correct• A development appraisal is simply a valuation format,

so:

1. Validate the assumptions

2. Check the cash flow – are costs and income occurring at the right time?

3. Does the resultant residual match knowledge of site values in a particular location? If not, why not?

4. Will the market actually support the development

Where is the development market today, is there one?

• Development Finance - the elephant in the room

• Tenant Demand - another elephant

• Offices - at rents less than £20 per sq ft there is no site value - that’s most of the UK, but London, Thames Valley are viable.

• Industrial - viable but land values are probably less than half of 2007.

• Retail - food never stopped - town centres and out of town down to location.

• Residential -

• Recovering, major house buyers are active but concentrating on housing not apartments private developers are struggling for cash

• Affordable housing no government grants for RSL’s has reduced land values by up to a third.

‘CIL’ Case Study – Portsmouth City Council

Assumptions:• Undeveloped

site.

• Affordable housing via S106.

‘CIL’ charge (April onwards)

Current S106 contributions

Proposal

£973,029£863,705.87Total

£0£8,955.00900 sq.m. B1 Office

£973,029 £854,750

50 x 3 bed houses (4,000 sq.m.)

And Finally – is it viable?

Don’t believe everything you hear.

• The Government wants developers to convert offices into flats.

• But there is a huge overhang of vacant flats e.g.• Birmingham 453• Bristol 1000+• Leeds 289• Manchester 746• Southampton 759

Source Rightmove 17/1/2012

Making commercial sense of property

vailwilliams.com

James Lacey - Partner, Planning ConsultancyTelephone: +44 (0)1483 446826Mobile: +44 (0)7909 966836Email: jlacey@vailwilliams.com

Chris Cave - Partner, Development ConsultancyTelephone: +44 (0)121 654 1065 Mobile: +44 (0)7887 626354 Email: ccave@vailwilliams.com