Kate Taylor demystifies the development appraisal competency for the APC
Development appraisal can be notoriously complex. This often translates into a lack of clarity in competency questioning.
It is important that an APC candidate not only understands his or her role as a tiny cog in the development machine, but also the workings of the engine as a whole. This means a very big picture indeed, criss-crossing other competencies on the mandatory and technical side, such as planning and sustainability.
As always, the candidate needs to read the pathway guide and understand competence as defined by the RICS, which may not be quite the same thing as acing performance management. It is also important to understand the criteria that candidates will be measured against.
Development appraisal has an astonishing breadth and can concern a small or large development that did or did not happen, depending on the viability assessment of the candidate. It is also a fascinating area, where candidates get the chance to show how they made a difference in a development that may be there long after they are gone (depending on the building’s life cycle).
The level 1 knowledge for this competency is not as obvious as it is in many other competencies. The RICS guidance notes and the law do not trip off the tongue quite as easily. Firstly, candidates need to make sure they know the difference between a residual valuation and a development appraisal; the techniques are very similar, but the outcomes are different and it is a frequent mistake to get them mixed up.
Secondly, a lack of knowledge about the planning system should not derail a candidate’s competency example. It is a sadly common error to over-rely on software packages and fail to consider all the legal risks. In particular, planning mitigation is a favourite area of assessors (section 106, Town and Country Planning Act 1990 and the community infrastructure levy).
There are also some RICS guidance notes that can make a candidate appear a “safe pair of hands”. Most candidates will refer to the Valuation Information Paper No 12–Valuation of development, land but omit the much bigger and more up-to-date document – Financial Viability in Planning.
Development is becoming more dense, with efficient use of land a key design feature. This increased massing of development, particularly in cities, can create rights of light issues. The RICS published a 2nd edition Rights of Light guidance note in April 2016, which is a good illustration of how the development market affects the work of surveyors. Another example of knowledge into action would be sustainability features in a development and their influence on value and cost.
All the usual pitfalls around valuation will also apply, such as contamination, asbestos, measurement and following RICS valuation standards.
This is where it gets tricky. A development appraisal is usually very complex, but it needs to be broken down into a series of clear inputs that the assessors can follow and drill down in questioning.
The candidate should start off with the technique chosen to establish viability (in much the same way as method of valuation), distinguish between a traditional residual approach and a periodic cash flow.
Then all the inputs should be described, starting with how gross development value was calculated and moving logically through all the development costs. It is important to remember to articulate the balance between debt and equity and the financial repayment model. The candidate should stand back and check that all the inputs make sense, because the assessors are likely to have a good awareness of standard construction costs and fees.
The contingency sum may be questioned. This doesn’t mean the assessors believe the candidate to be wrong, but are seeking a professional, confident justification.
A development appraisal is a complex calculation and many of the inputs will be subject to uncertainty. Sensitivity analysis, which is relevant to level 2, means rerunning the appraisal with different assumptions on inputs, for example an increase in build costs or a decrease in gross development value, and seeing what effect this has on the profit measures.
The candidate needs to know the ins and outs of the calculation, as with a big project it can often seem hard to believe a graduate surveyor led a valuation of millions if he or she cannot adequately explain key factors in the appraisal.
Level 3 is all about complex reasoned advice to a client and, in the context of development appraisals, this will be the assessment of the proposed development’s viability. This sounds simple, but the complex reasoned part of that advice will be based on a wide range of risk factors leading to inherent uncertainty.
The candidate’s advice will include the sensitivity analysis and the impact of changes to the variables on viability and may stray into appropriate sources of development finance.
The advice to a client will depend on the objectives for the development. For example, if the goal is to hold the development for long-term investment, then profit expressed as a percentage of gross development value may be used.
If the client is a trader developer, then profit on cost will be a more usual measure of viability. There is no one-size-fits-all approach and the advice needs to have the client’s strategy built in.
The assessors will be interested in the outcome, so candidates should make sure the development appraisal has an end and describe how their advice added value to the client in a big money decision.
In other words, was the development viable or not?
• APC Presentation This online masterclass discusses key elements of the APC final assessment interview. Hints and tips at www.delever.com
• APC Final Assessment Competency Revision Workshop This preparation day covers everything a candidate needs to know for the APC plus other useful resources: www.delever.co.uk/facrw
• APC mock interviews An opportunity for candidates to practise their APC final assessment interview, including presentation and specific competency-based questioning. It comprises a full hour interview like the real thing and immediate constructive feedback from two assessors, including hints and tips on best practice: www.delever.co.uk/mocks
• Supervisor and counsellor APC training/recordings – formal CPD Guidance on how to appropriately manage and support candidates to get them through the APC. Free one-two hours of formal CPD: www.delever.com
• APC Commercial Property Revision Guide Every forward-thinking APC candidate’s reference book for APC preparation: www.delever.co.uk/katetaylor
• Timeline wallchart Free A2 pictorial view of the APC process that can be used to track progress: www.delever.com
• APC Explained Masterclass This helps candidates to understand what needs to be done to achieve the APC, including a walk-through of the DeLever APC process timeline and myAPC Diary: www.delever.com
• Trial myAPCDiary A subscription to this product can save candidates 60% of their day-to-day APC administration: www.apcdiary.com
• RICS APC Guides These should be read at least once every three to four months and fully understood. Candidates from outside the UK also need to check their regional websites for any local APC requirements: www.rics.org
Questions will always be adapted to whether you are working in the public or private sector and could comprise:
• What is a section 106 agreement?
• What is an S curve in development finance?
• How did you calculate the build costs?
• Which profit measure was your advice to a client based on and which was the most sensitive element of the appraisal?
*Don’t assume that the questions given here will be asked at an APC assessment. Assessors will focus on and pose questions on the basis of the candidate’s declared competencies, pathway guide requirements, up-to-date developed knowledge base and the examples provided in their summary of experience, etc.
SUPERVISOR AND COUNSELLORS
How to help
You can help your candidate by encouraging them to take ownership. A development appraisal is usually a team effort and the risk is that the candidate will say “we” too much and look like they just did the photocopying.
Make sure that they can talk competently through the software print-out, so they do not give the impression that they just pressed a few buttons and the computer did all the work.
• The development market and Brexit
• The RICS guidance note on Rights of Light 2nd Edition published April 2016 http://www.rics.org/uk/knowledge/professional-guidance/guidance-notes/rights-of-light-2nd-edition/
• Planning mitigation and the housing crisis in news and politics
• Sustainability and development
Kate Taylor FRICS is an APC chair and a DeLever APC coach. Follow Kate Taylor and Jon Lever on Twitter: @katetay73593006 and @deleverapc