10/16/2017

CIL / S106

Financial Viability and Funding Hertfordshire Workshop

Chris Marsh FRICS MRTPI DipTP DipCP

Christopher Marsh and Co.Ltd

Daniel Kaye BSc(Hons) MRICS FRSA

Dip.Int.Man

Sheridan Development Management Ltd

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Questions / Issues

Why are developer contributions towards

new infrastructure often disappointing?

How do we get a better understanding of

financial appraisal modelling?

How can LPAs get better outcomes via

CIL/S106 or by alternative mechanisms?

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Part 1 Content

Principles of Viability Models

Key financial variables

Financial Testing and Development

Viability

The role of CIL/S106 and affordable

housing.

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The Importance of

Development Appraisals

Policy Context

– Increasingly critical to test Policies in terms of Financial Viability BEFORE adoption

» PPS3 Para. 29 re Changing Affordable Housing Thresholds

» NPPF and PPG – ‘ developments are deliverable’

» Whole Plan Viability

» CIL testing and more generally, post Circular 05/05 SPDs, such as…………..

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The London Plan

Policy 3.12: Applicants ‘prove’ max

AH with working viability model

(interrogated?) and full evidence.

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An understanding of the Basics of

Residual Valuations – Quick Summary

Simple method for appraising development

viability

Initial ‘Filtering’ of projects before DCF

To determine maximum value of a

Development Site – the ‘Bid’ value.

To calculate expected Profit and cost ceiling

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The Basics

Simple method for appraising development viability

Completed Value of the Development

-

Construction Costs

-

Developers Profit

=

Residual Land Value

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Purposes

To determine maximum value of a

Development Site – the ‘Bid’ value.

To calculate expected Profit

To calculate a cost ceiling

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COMPLETED DEVELOPMENT VALUE

-

CONSTRUCTION COSTS, FEES ETC.

-

DEVELOPER’S PROFIT

=

RESIDUAL LAND VALUE

(Must exceed Existing Use Value)

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COMPLETED DEVELOPMENT VALUE

-

CONSTRUCTION COSTS, FEES ETC.

PLANNING OBLIGATIONS

-

DEVELOPER’S PROFIT

=

RESIDUAL LAND VALUE

(Must exceed Existing Use Value)

REDUCTION

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COMPLETED DEVELOPMENT VALUE

-

CONSTRUCTION COSTS, FEES ETC.

PLANNING OBLIGATIONS

AFFORDABLE HOUSING

-

DEVELOPER’S PROFIT

=

RESIDUAL LAND VALUE

(Must exceed Existing Use Value)

REDUCTION

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COMPLETED DEVELOPMENT VALUE

-

CONSTRUCTION COSTS, FEES ETC.

PLANNING OBLIGATIONS

AFFORDABLE HOUSING

-

DEVELOPER’S PROFIT

=

RESIDUAL LAND VALUE

(Must exceed Existing Use Value)

REDUCTION

Percentage/ Tenure

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COMPLETED DEVELOPMENT VALUE

-

CONSTRUCTION COSTS, FEES ETC.

PLANNING OBLIGATIONS

AFFORDABLE HOUSING

-

DEVELOPER’S PROFIT

=

RESIDUAL LAND VALUE

(Must exceed Existing Use Value)

REDUCTION

Percentage/ Tenure

and new initiatives ?

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COMPLETED DEVELOPMENT VALUE

-

CONSTRUCTION COSTS, FEES ETC.

PLANNING OBLIGATIONS

AFFORDABLE HOUSING

CIL

-

DEVELOPER’S PROFIT

=

RESIDUAL LAND VALUE

(Must exceed Existing Use Value)

LA Starting Point 1

Policy Compliant scheme

Transparent ‘open book’ appraisals

wherever possible – FoI challenges

Directly comparable or adjusted evidence

Early discussions and RP offers

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LA Starting Point 2

Costs detailed and benchmarked, current

not projected (unless long term phased

schemes)

Abnormal costs disaggregated, justified and

reflected in land value

S106/CIL costs agreed early and inputted

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LA Starting Point 3

Profit – LB Viability Group now suggesting

15-20% on cost – Controversial ?

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LA Starting Point 4

Land value

RV v Benchmark LV (reflecting policies)

EUV + Premium

cf – Acquisition cost / AUV

– Planning policies are ‘squeezed’ ??

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Review Mechanisms

Changing financial variables during build

May be sought up to policy compliance on

phased and non phased schemes (see GLA

Housing SPG)

Review timings ?

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Complications

CIL Review status

Starter homes – planning bases ?

Changing market conditions and build cost

inflation

New affordable housing initiatives

What time is it ???

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The Peak of the Market

Recession – little or no

development activity

Demand falls – Rental

Growth slows

Capital Values fall

Developments Unviable

Banks stop lending

Bankruptcies Increased Demand as

Recovery begins

Reduction in

Over-supply

Rents Rising

Development Activity

Capital Values Rising

WHAT TIME IS IT ?

Herts CIL or s106 Examples - 1

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NoLocal

authoritySite Scheme

Developer and

applicant

Date of

application

Date of

resolution to

grant

Type and

existing useSite size Total units Private

Affordable

rent

Intermediate or

shared

ownership

S106 costs CIL costsS106 or CIL

per unit

Comments or

other info

1 Broxbourne

Land To The West Of

Hoddesdon And East Of

The A10 Incorporating

Land To The North And

South Of The Dinant Link

Road Between Hertford

Road And Lord Street And

Land To The South Of Lord

Street Hertfords

AN OUTLINE PLANNING APPLICATION FOR A

RESIDENTIAL/MIXED USE DEVELOPMENT INCORPORATING

HOUSING UP TO 523 UNITS (WITH DELIVERY OF A 1FE

PRIMARY SCHOOL) OR UP TO 485 UNITS (WITH DELIVERY

OF A 2FE PRIMARY SCHOOL), A SHOP, A HOTEL (WITH

ANCILLARY GYM/RESTAURANT), COMMERCIAL FLOOR

SPACE, PUBLIC OPEN SPACE AND ALLOTMENTS, WITH ALL

MATTERS RESERVED EXCEPT FOR MEANS OF ACCESS

FROM THE DINANT LINK ROAD AND LORD STREET AND A

SUSTAINABLE URBAN DRAINAGE SYSTEMS WITH

ASSOCIATED EARTH WORKS TO ENABLE DELIVERY OF

PHASE 1

Land

Improvement

Holdings and

Savills

14/10/2013 02/04/2015 Green belt land 39.42 ha 523 418 84 21 £ 13,446,586 £ - £ 25,710 20% affordable

2 Broxbourne

Former St Marys High

School Site Churchgate

Cheshunt Hertfordshire

DEMOLITION OF ALL EXISTING BUILDINGS AND

REPLACEMENT WITH THE ERECTION OF 79 RESIDENTIAL

DWELLINGS COMPRISING 12 APARTMENTS AND 67

HOUSES, PROVISION OF OPEN SPACES AND

LANDSCAPING, PROVISION OF AN INTERNAL VEHICULAR

NETWORK AND ASSOCIATED HIGHWAY WORKS AND CAR

PARKING, AND CREATION OF AN ATTENUATION POND

Cheshunt

Properties Ltd

and CBRE

24/01/2014 16/01/2015Green belt school

redevelopment2.9 ha 79 55 24 0 £ 1,435,000 £ - £ 18,165 30% affordable

3 Dacorum

LIDL - LAND FORMERLY

ROY CHAPMAN LTD AND

DAVIS AND SAMSON,

GOSSOMS END,

BERKHAMSTED, HP4 3LP

(CONSTRUCTION OF A FOODSTORE (CLASS A1) WITH

RESIDENTIAL DEVELOPMENT (30 UNITS) ABOVE

TOGETHER WITH CAR-PARKING, LANDSCAPING, ACCESS,

LANDSCAPING AND ASSOCIATED ENGINEERING WORKS

ON LAND AT GOSSOMS END / BILLET LANE,

BERKHAMSTED)

Lidl Uk and

GVA16/06/2014 28/102014

Redevelopment of

commercial and

light industrial use

0.6 ha 30 20 8 2 £ 134,555 £ - £ 4,485 33% affordable

4 Dacorum

FORMER MARTINDALE

JMI SCHOOL, BOXTED

ROAD, HEMEL

HEMPSTEAD, HP1 2QS

RESIDENTIAL DEVELOPMENT (UP TO 43 DWELLINGS),

DEMOLITION OF EXISTING BUILDINGS AND STRUCTURES,

ACCESS AND PARKING, ALTERATIONS TO LEVELS,

LANDSCAPING AND RELATED WORKS (OUTLINE

APPLICATION - ALL MATTERS RESERVED EXCEPT

ACCESS)

Herts CC and

Vincent &

Gorbing

06/05/2014 27/02/2015

Redevelopment of

school and playing

fields

1.4 ha 43 28 11 4 £ 66,703 £ - £ 1,551

35% affordable and

on site play facilities

and health care

Herts CIL or s106 Examples - 2

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12 Hertsmere

Hertswood School Thrift

Farm Lane Borehamwood

Hertfordshire WD6 1TS

Demolition of existing school buildings (Use Class D1), Ark Theatre

(Use Class Sui Generis) and 2 residential dwellings (Use Class

C3) and erection of 301 residential units comprising 68 x 3 bed

houses, 81 x 4 bed houses, 39 x 1 bed flats and 113 x 2 bed flats

with new vehicular access, open space, parking and landscaping.

(Amended Plans received 15/07/2015 and 16/07/2015)

Bellway Homes 06/11/2014 08/10/2015Redevelopment of

school2.65 ha 301 194 80 27 £ - £ 1,190,455 £ 3,955 35% AH

13 Hertsmere

Tridac Dental Equipment

Ltd, Elton House Bushey

Hall Road Bushey WD23

2HJ

Demolition of existing building and erection of two new buildings to

provide 22 No: residential units (6 x 1 bed flat and 16 x 2 bed flat),

and communal amenity area, basement parking, cycle parking and

refuse / recycling stores (Amended plans received 21/01/15)

Heronslea 28/10/2014 27/11/2015Demolition of

offices0.2 ha 22 19 0 3 £ 385,000 £ - £ 17,500 13.6% AH

14 Hertsmere

Land South Of Elstree And

Borehamwood Station And

Adjacent To Coleridge Way

And Byron Avenue

Borehamwood

Hertfordshire

Development for 43 residential units (Class C3) with associated

access, parking, amenity space and landscaping.

Taylor Wimpey

North Thames18/06/2014 28/11/2014

Town centre infill

development1.3 ha 43 28 11 4 £ 316,831 £ - £ 7,368 35% AH

15 Hertsmere

Land At Studio Way

Borehamwood

Hertfordshire WD6 5NN

Demolition of Avenir House and the construction of 49no.

residential apartment units, together with vehicular access, parking,

amenity open space and landscaping. (Amended & Additional

Plans received 28/04/15 , 03/07/15 & 11/12/15) Affordable Rent

Units:

2 (two) x 2 (two) bed,; 2 (two) x 1 (one) bed; 2(two) x 3 (three)

bed. Shared Ownership Unit: 4 (four) x 1 (one) bed (a total of 10

Affordable Units).

Private

individual12/06/2014 09/05/2016

Town centre office

and warehouse0.47 ha 49 39 10 0 £ 1,048,911 £ - £ 21,406 20% AH

16 Hertsmere

Land At Rossway Industrial

Estate Rossway Drive

Bushey Hertfordshire

Change of use from car breakers yard (sui generis) to residential

development (C3) comprising: demolition of existing 5300m² GIA

industrial buildings and erection of 82 residential dwellings, parking,

open space and underground infrastructure. Private Dwellings: 33

x 3 bedroom houses; 24 x 4 bedroom houses; 9 x 5 bedroom

houses. Affordable Dwellings: 7 x 2 bedrooms (flats); 7 x 3

bedrooms; 2 x 4 bedrooms.

Private

individual13/05/2014 28/11/2014

Suburban car

breakers yard3.8 ha 82 66 12 4 £ 1,004,519 £ - £ 12,250 19.5% AH

Financial Modelling Analysis –

Baseline Scenario

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Land Price Reduced from £2.75m

to £1.5m

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Build Costs Reduced to £175 and

£150 per sq ft

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Affordable Housing Increased to

40%

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Private Sales Values Increase to

£400k per Unit

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Land – Price, Value, Cost or

Worth

Existing use value

Existing use value plus 20% (release

premium)

Alternative use value

Market value

Benchmark value

Residual value

Acquisition price

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Ideas and Options 1

Implement ‘Herts Viability Protocol’ adopting EUV (plus)

as a baseline for benchmark land value in viability

assessments

Adopt open book and transparency protocol

Universal CIL adoption across Herts with banding

Increase CIL in certain locations to reflect brownfield,

greenfield and market differences across Herts

Adopt twin track of fixed 35% AH and ‘roof tariff’ per

unit

Optimise consistency and sharing between the authorities

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Ideas and Options 2

Establish pan-Herts Infrastructure Development

Corporation, in partnership with LEP, HCA, NHS etc… to

acquire land (CPO) and build infrastructure

Encourage new entrants to the market place – SMEs

builders

Undertake comprehensive ‘top to bottom’ housing and

employment land capacity study to identify all potential

sites from 10 homes to 5,000 homes plus comprehensive

site allocations regime

Bid for Central Government new funding initiatives

Identify alternative models – eg TIF

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Contacts / Queries

Chris Marsh – Christopher Marsh & Co Ltd.

Tel/Mob : 01233 612575 / 07940063781

Email : marshc@suspc.co.uk

www.suspc.co.uk for more information

Danny Kaye – Sheridan Development Management Ltd

Tel/Mob – 020 7018 1821/ 07508 124 142

Email: danny.kaye@sheridandevelopment.co.uk

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