sample development appraisal 2

SITE DEVELOPMENT ANALYSIS INDIVIUAL

REPORT

153-173 MARYLEBONE ROAD, LONDON, NW1

© Hussein Hijazi 2016 1

CONTENTS

1. Introduction ............................................................................................................................................................................................................................. 2

2. Review of Development 7 Group Work .................................................................................................................................................................................... 2

3. The Site .................................................................................................................................................................................................................................. 3

4. Area Analysis .......................................................................................................................................................................................................................... 5

5. Student Accommodation/Leisure Mixed Use Development ...................................................................................................................................................... 8

5.1 Group work proposal ............................................................................................................................................................................................................. 8

5.2 Student Accommodation ........................................................................................................................................................................................................ 8

5.3 Leisure ................................................................................................................................................................................................................................ 12

5.4 Student Accommodation Comparables ................................................................................................................................................................................ 15

5.1 Net Residual Valuation Calculations ............................................................................................................................................................................... 18

6. Possession ............................................................................................................................................................................................................................ 21

7. Conclusion ............................................................................................................................................................................................................................ 23

References ................................................................................................................................................................................................................................... 24

Appendices ................................................................................................................................................................................................................................... 27

Appendix 1 – Sample Meeting Agenda ...................................................................................................................................................................................... 27

Appendix 2 – Shopping Centre Viability Submission .................................................................................................................................................................. 28

Appendix 3 – Residential Development Viability Submission...................................................................................................................................................... 29

Appendix 4 – Marketing Material ............................................................................................................................................................................................... 31

Appendix 5 – Marylebone Area.................................................................................................................................................................................................. 32

Appendix 6 – Marylebone Road Commercial Occupiers ............................................................................................................................................................ 33

Appendix 7 – Food and Beverage Rates in Marylebone ............................................................................................................................................................. 35

Appendix 8 – Privately Run Student Accommodation within 3.0 miles to Site ............................................................................................................................. 36

Appendix 9 – Higher Education Establishments within 3.0 miles to Site ..................................................................................................................................... 37

Appendix 10 – Leisure Development Comparables and Residual Valuation ............................................................................................................................... 38

Appendix 11 – BCIS Construction Costs .................................................................................................................................................................................... 41

Appendix 12 – BCIS Construction Duration Calculator ............................................................................................................................................................... 41


1. INTRODUCTION

The investigation into the potential development of the site located at 153-173 Marylebone Road was completed in the group 7 work that was submitted

to the panel under the name Development 7 (Ruparel et.al., 2015). The group work examined numerous potential developments that could yield the

highest possible profit for the developer post completion and sale. Briefly, the two shortlisted potential developments for the site were mixed use

Office/Leisure and mixed use Student Accommodation/Leisure developments. Through careful consideration of both options, it was decided by the

group that the Office/Leisure mixed development would be the most profitable use for the site. However, upon individual examination of the potential

profit that could be achieved from the Student Accommodation/Leisure development, it could be argued that the development cou ld be made more

viable and thus lead to a higher profit for the developer and a higher Gross Development Value. The arguments are presented below, with references

and appendices at the end of the report.

2. REVIEW OF DEVELOPMENT 7 GROUP WORK

Since identification of the individual members of the group, it was evident from the onset that members were committed to the task at hand and the

upcoming challenges. The primary methods of communication amongst members were the use of the instant messaging service Whatsapp for informal

and quick queries, and email for the sharing of important documentation and information that is relevant to the presentation and the group report. This

included the setting up of a centralised shared online folder for the storing of documentation using Google Drive that was accessible by all members

of the group. The aforementioned methods of communication were extremely effective in ensuring that members were continuously up-to-date with

any new developments, however, it was difficult in ensuring that all members read emails, thus I would have added a “Read Request” into every email

that members received.

Team meeting dates and times were decided based upon the availability of each member to attend, with an aim to meet once a week until the date

of the presentation. However, as some member are in full-time employment, provisions had to be made in order to accommodate non-attendees in

the form of catch-up meetings or through one-to-one meetings, which affected the effective sharing of information. Meetings took place on the

university’s Marylebone campus, and the first and last meetings took place in a booked group study room in the library. Meetings in-between took

place in lecture theatres an hour before a lecture and were held in a more informal manner. I believe that if meetings were held in a group study room

and in a more formal setting, the dissemination of information would have been more effective, as other groups were holding their own meetings in

the same space, which on some occasions caused distractions and interruptions.

An important aspect that Group 7 excelled at is the division of labour between members. From the onset, each group member expressed their

strengths and weaknesses in their abilities to complete certain tasks, taking advantage of members who are in employment within the various property

sectors that were being examined. Thusly, after the end of each meeting, the identified tasks were assigned or taken up by group members

accordingly, who were then grouped into sub teams, each focusing on the two potential developments for the site. Coupled with constant active

communication between members, most tasks were completed effectively and on time. However, division of labour had its drawbacks on certain

occasions, particularly when progress was affected due to the group or sub-team requiring information to be completed and shared from certain


members or sub-teams. Thusly, I would have compensated for this drawback through the employment of contingency or “back-up” members from

within the group who would perform the tasks in conjunction with the assigned member, in order to mitigate for the risk of not meeting submission

deadlines.

From a personal perspective, my involvement within the group revolved around ensuring that tasks were completed and shared on time, ensure that

information is not distorted while keeping effective records of items to be discussed and individual tasks, ensure member attendance to meetings,

and to ensure the entire group was focused on achieving the required outcomes through the chairing of meetings and producing meeting agendas

[Appendix 1]. In terms of my contributions to the report and to the presentation, my roles involved investigating and researching the viability of

developing a shopping centre on the site [Appendix 2], a residential development [Appendix 3], producing the marketing material for the chosen

scheme [Appendix 4], the Office/Leisure development, and the summary and closing slides of the presentation, all of which I presented during the

assessment presentation.

All of my tasks were performed through effective secondary research that were relevant to the chosen development, using leading industry

organisations as sources, such as Knight Frank and GVA, and using the CoStar Focus Property Intelligence and Estates Gazette Interactive

databases, in order to obtain the relevant market and yield information to obtain appropriate Gross Development Valuations for the assessed schemes.

In summation, members of Group 7 worked extremely well with each other, and almost all members were reliable and delivered relevant professional

contributions that positively contributed to the overall performance of the group work. If I was to do this task again with the same members, I would

have instilled a much more disciplined formal approach, particularly during team meetings. Additionally, with previous public speaking and presentation

experience, I would have supported certain members of the group in preparing for the assessed presentation better, particular ly during the question

and answer stage.

3. THE SITE

The site is located at 153-173 Marylebone Road, London, NW1 within the Marylebone area in the borough of the City of Westminster, and has an

approximate area of 2,650 sqm (Ruparel et al., 2015) with a frontage onto Marylebone Road, and is bordered by Seymour Place to the West, Enford

Street to the east and Walmer Street to the south. The site benefits from excellent proximity to several transportation hubs that include Marylebone

Station (0.1 miles), Edgware Road Station (0.2 miles), Baker Street Station (0.4 miles), Paddington Station (0.9 miles) and King’s Cross St Pancras

Station (2.0 miles). Additionally, the site can be accessed through public buses and the London bike higher scheme, with bus stops and bike racks

within close proximity.


FIGURE 1 THE SITE; SOURCE: (RUPAREL ET AL., 2015)

Th

e S

ite


4. AREA ANALYSIS

Marylebone has become one of London’s premium destinations. Bordered by Oxford Street to the south, Regent’s Park to the north and Edgware

Road to the west, (Mail Online, 2015) described Marylebone as London’s new “it” destination due to the ever-changing characteristics of the area;

transforming from a globally renowned high-end medical location to an area with a diverse mix of high-end residential and commercial properties that

include offices, retail, restaurants and cafés.

From a residential standpoint, (Knight Frank, 2015) reports that Marylebone has become “London’s newest super-prime district”, due to the “quality

of the urban environment and property offer” which has resulted in buyers moving from other super-prime areas such as St John’s Wood, Mayfair,

Belgravia and Hampstead. Additionally, (Knight Frank, 2015) reports that more square footage can be bought in Marylebone for £5 million compared

to the aforementioned areas, increasing the influx of buyers into the area. With values growing by 17% in Marylebone from June 2013-2015 (Knight

Frank, 2015), average property prices, as reported by Foxtons (Figure 2), Zoopla (Figure 3) and Rightmove, range between £1,200,000 to over

£1,600,000.

FIGURE 3: SOURCE (FOXTONS.CO.UK, 2016) FIGURE 2: SOURCE (ZOOPLA.CO.UK, 2016)


Commercially, Marylebone has a significant mix of occupiers, with the majority of tenants occupying offices classified as prime grade space on

Marylebone Road (Appendix 6), for which recent commanded prime rents are at £97.50 per sq ft as shown in Figure 4 below. Office occupiers, as

reported in (Ruparel et el., 2015) come from a variety of sectors with the majority operating in the Financial and Real Estate sectors (Figure 5). In

terms of retail, rents commanded in terms of Zone A on Marylebone High Street are around £400 per sq ft, as shown in Figure 6 below, with leisure

properties, focusing on food and beverage A3 space, commanding rents upwards of £90 per sq ft (Appendix 7). A more detailed analysis on leisure

properties in relation to the development will be discussed in the next section of this report.

FIGURE 5 SOURCE: (RUPAREL ET. AL., 2015)

FIGURE 4 SOURCE: (GVA|BILFINGER, 2015)


FIGURE 6 SOURCE: (CBRE, 2015)

In terms of student accommodation, there are ten universities/higher education providers (Appendix 9) with thirteen privately run student

accommodation sites (Appendix 8) within 3.0 miles to the site. Lower tier rents per week range from £76.51 to £319 and upper tier rents range from

£117.91 to £660 per week. A total of 115,320 full-time students attend the universities listed under Appendix 8 with 55,360 of them being international

students from within and outside the EU. Demand for student accommodation is highest in London due to limited availability, with universities only

being capable of accommodating 34,000 students in their own halls (Housing Services, 2015), institutions and individual students are looking at

accommodation provided by the private sector to meet the shortfall in bed supply. A more detailed analysis is provided in the upcoming sections.


5. STUDENT ACCOMMODATION/LEISURE MIXED USE DEVELOPMENT

5.1 Group work proposal

As stated in (Ruparel et. al., 2015), the mixed use student accommodation/leisure development scheme will be over five floors with the leisure

development on the ground floor and the remaining top four floors will be 420 student accommodation studios. The Gross Internal Area (GIA) of the

building is approximately 12,500 sqm with the leisure development occupying 2,500 sqm and the studios occupying 10,000 sqm.

In terms of the student accommodation, the group work presented comparables that resulted in a two tier rate that can be charged for the studios.

Studios on floors one to three achieving a rent of £350.00 per week and the studios on the fourth floor achieving a rent of £400.00 per week. It is

assumed that each studio is 23sqm with no extra amenities provided in the building. As for the leisure space on the ground floor, based on comparables

within the area, the group presented a rent per sqm of £796 for eight restaurants each of approximately 312 sqm achieving an annual rent of

approximately £248,750 per annum for each restaurant. The Gross Development Value of the site was therefore assumed to be £160,095,255, with

the leisure development contributing £49,750,000 and the student accommodation contributing £120,202,500. The Net Residual Value of the site was

calculated to be say £97,300,000 with Gross Development Costs totalling £62,759,556.

I believe that this development can be made more viable, particularly in terms of student accommodation, as the type of accommodation provided is

similar throughout the development where as comparables suggest that higher rents can be achieved from variations in the type of accommodation

offered. The arguments, comparables and residual valuation are presented the sections to follow.

5.2 Student Accommodation

(JLL, 2015) conducted research into the London student housing market which states that London’s population is estimated to increase to 10 million

people and the corresponding full-time student population in London is expected to rise by 50% within the next decade. Rising housing prices and a

shortage in supply of Purpose Built Student Accommodation (PBSA) properties has led to demand outstripping supply, with the supply pipeline in

prime central London being affected due to planning constraints, leading to higher rents which is attracting significant investment in the market, for

which (JLL, 2015) estimates it to be £5.7bn nationally by the end of 2015, for which London’s share is £1.5bn in the first half of 2015. Although only

9% of students occupy PBSA properties (Figure 7), the limited availability of beds from London universities and HMOs has raised the demand for

PBSA properties in London. Additionally, (JLL, 2015) shows that prime yields within Zones 1-2 in London have dropped significantly since 2012, with

yields of circa 4.5% being achieved (Figure 8), resulting in increased direct investment into the PBSA market, particularly foreign direct investment

from international funds and investors. This view is not only shared by JLL, (Savills, 2015) also states that prime London yields have fallen, and

achieving similar rates (Figure 9) with (Knight Frank, 2014) demonstrating that when compared with other assets, student property achieves the

highest returns (Figure 10).

Focusing on the area around the site, as shown under Appendix 9, there is a mix of ten privately and publically funded universities/higher education

providers within 3.0 miles to the site, with a total of approximately 162,420 students, of which approximately 115,320 are full-time students and 55,360

of them being international students from within and outside the EU. The demand for PBSA is highest amongst international full-time students, whether


undergraduate or postgraduate. The accommodation provided by the private rented PBSA within 3.0 miles are listed under Appendix 8. (AFS, 2015)

reports that over 90% of all students find it important to look for accommodation in relation to the proximity to the university, with over 75% of students

finding it important to be in close proximity to a town/city centre (Figures 11 and 12).

FIGURE 8

FIGURE 11

FIGURE 12

FIGURE 7

© Hussein Hijazi 2016

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FIGURE 9

FIGURE 10


11

FIGURE 11

FIGURE 12


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5.3 Leisure

Indeed throughout the UK, growth in sales for pubs and restaurants has shown a relatively continuous increase in year on year sales since January

2010 (BDO, 2015) as shown in Figure 13 below. According to (M&G Real Estate, 2015), the UK leisure industry is worth over £176bn with restaurants

and food services contributing £28bn (Figure 14). As the name suggests, the leisure market is heavily dependent on the spending power of consumers

and the amount of disposable income they have. Thus, performance of the leisure market is dependent on the performance of the wider economy

and the levels of household spending and consumer confidence within the economy. With decreasing levels of unemployment and earnings

outstripping inflation (Figure 15), consumer confidence is recovering in 2015 (Figure 16), leading to an increase in household spending on the

restaurant sector of the leisure market (Figure 17).

Therefore, an increase in demand for leisure activities by consumers, results in higher revenues for leisure providers, thus increasing the level of rents

paid by occupiers to landlords as leisure property rents are mostly valued using the profits method of valuation (Isaac and O'Leary, 2012). For within

the Marylebone area, this is demonstrated by (IPD | Levy, 2015, p 26) where it is stated that all property capital values have increased by 22.8% in

2014, exceeding the pre credit crunch peak in 2007 by 30%. (IPD | Levy, 2015) also states that “rents were the key driver of 2014 performance with

growth of 11.5% y/y”. The increase in rents and capital values has had a noticeable impact on yields, where the Marylebone and Euston equivalent

yield stands at 4.6%, 40 basis points lower than at the end of 2013 (Figure 18). Research into the restaurant sector by (Colliers International, 2014)

states that rent per sq ft have increased from £65 in 2009 to £90 in 2014, a 38% increase (Appendix 7) within Marylebone.

As a result of the market analysis above, it can be said that including prime leisure space within the proposed development is viable and will contribute

positively to the overall GDV of the site and consequently the developer’s profit. The results of the research presented in the group report provides

for a substantial insight into the London restaurant sector and the prevailing trends that are being witnessed in the UK and the capital. Thus, I am

unable to make the restaurant space within the development more viable than that presented in the group report. This is because individual research

into the market comparables, rents and yields of the restaurant sector in relation to the proposed development are similar to those submitted in

(Ruparel et.al., 2015). Therefore, the residual valuation for the leisure development will be based on the information provided in (Ruparel et. al., 2015)

provided in Appendix 10.


13

FIGURE 13 SOURCE: (BDO, 2015)

FIGURE 14 SOURCE: (M&G REAL ESTATE, 2015)



14

FIGURE 17 SOURCE: (M&G REAL ESTATE, 2015)

FIGURE 18 SOURCE: (IPD | LEVY, 2015)



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5.4 Student Accommodation Comparables

Based on the analysis in Section 5.2, it is clear that the demand for PBSA in London is high and the returns generated by the sector as an asset class

is attractive to investors. Therefore, the student accommodation development on the site will be that of a premium accommodation that will command

upper tier rents due to the location of the site being in a prime central London area in Zone 1, proximity to several globally renowned universities,

ease of access and proximity to several transportation links.

The comparables below are extracts from privately run PBSA outlined under Appendix 8 and they were selected based on the fact that they are

premium facilities that are within close proximity to the site.

Comparable Variation Rent per week (£) Size (sqm) Distance from Site

iQ Bloomsbury

(Source: Iq-student-

accommodation.com, 2016)

Studio Flat – Gold 390 20-22

1.5 miles

Studio Flat – Gold Plus 405 30-31

Studio Flat – Platinum 405 18-18.5

Studio Flat – Diamond 425 20-22

Studio – Diamond Plus 450 20-22

Two bedroom flat 660 36-36.5

Mansion Bloomsbury

(Source: Mansion Student,

2016)

Standard Studio 405 Not stated

1.7 miles

Premium En-suite Room 415 Not stated

Classic Studio 415 Not stated

Classic 1 Bed Apartment 442 Not stated

Mansion Studio 562 Not stated

Premium Studio 608 Not stated

Deluxe Studio 614 Not stated

Woburn Place

(Source: Unite Students,

2016 b)

Classic Accessible Studio 405 22

2.1 miles

Classic Studio 405 18

Premium Range 1 Studio 490 18

Premium Range 1 One

Bedroom Flat

599 18-20

Premium Range 2 One

Bedroom Flat

609 20


16

Somerset Court

(Source: Unite Students,

2016 a)

Classic Studio 359 18

2.2 miles Premium Range 1 Studio 369 18

Premium Range 2 Studio 399 22-24

Classic One Bedroom Flat 479 30

Urbanest King’s Cross

(Source: Uk.urbanest.com,

2016)

Studio Apartment From 379 19

2.4 miles Luxury Studio Apartment From 529 19

Goodenough College

(Source: Goodnenough

College 2016)

Small Studio Flat 303 18.2

2.5 miles

Large Studio Flat 321 25.1

One bedroom flat 388 37

Small Two Bedroom Flat 418 47.9

Large Two Bedroom Flat 442 58

Based on the comparables above, it is clear that the group proposed student development scheme could be significantly enhanced by offering a

variety of accommodation types, rather than simple generic studios throughout the entire scheme. Assuming the PBSA will have a GIA of 10,000 sqm

over floors one to four, then the enhanced development will house the below outlined student accommodation and their corresponding rents per week

based on the above comparables.

Room Type Rent per week (£) Size (sqm) Number of Units Floor(s) Gross Rent per

annum for all units

(x51 weeks)

Classic Studio 405 20 250 One and Two £5,163,750

One Bedroom Flat 550 30 80 Three £2,244,000

Two Bedroom Flat 660 40 60 Four £2,019,600

The proposed scheme will provide similar services to comparables and to the group proposed scheme in terms of fully paid utilities and the provision

of security and other overhead expenses. Therefore, the cost per bed will need to be analysed in order to determine the Net Rental Income before

determining the Gross Development Value of the PBSA. These are based on Figure 19 below.


17

Based on the figures in Figure 19 above, the Void and Bad Debt is assumed to be 1.5% and Total Scheme and Overhead Costs is equal to 21.0%,

thus bringing a combined Operating Expenses of 22.5% per bed. The total number of beds within the improved scheme is therefore 450.

FIGURE 19 SOURCE: (RUPAREL ET.AL., 2015)


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5.1 Net Residual Valuation Calculations

Based on calculations and estimations used in Issac & O’Leary (2012), the selection of variables and their justified values are shown in Table 1 below.

TABLE 1: Variable selection, values and justification

Variable Value Reason for this value

Leisure Development GDV £49,750,000 Based on rents of £796 per sqm and a yield of 4%

as reported in (Ruparel et. al., 2015)

PBSA GDV £147,066,660 Calculated by deducting Operating Expenses of

22.5% from the Gross Rental Income multiplied by

yield purchase in perpetuity at 5%. The 5% is based

on quoted yields by (JLL, 2015) and (Savills, 2015)

at 4.5% with a 0.5% risk premium added on top.

Total GDV £196,816,660 Sum of Leisure and PBSA Development GDV

Purchaser’s cost; stamp duty legal fees 5% of GDV Stamp Duty Land Tax at 4% and 1% agent’s fees.

Construction costs for Leisure GIA in £/m2 £3162/m2 This is the average cost of building restaurants in the

City of Westminster as supplied by the Building Cost

Information Service (BCIS) (Appendix 11)

Construction costs for PBSA GIA in £/m2 £2203/m2 This is the average cost of building student’s

residences in the City of Westminster as supplied by

the Building Cost Information Service (BCIS)

(Appendix 11)

Demolition £30/sqm Cost per sqm as provided by Homes & Communities

Agency, (2015). Guidance on dereliction, demolition

and remediation costs

Clearance £20/sqm Cost per sqm as provided by Homes & Communities

Agency, (2015). Guidance on dereliction, demolition

and remediation costs

Ancillary Costs 3% of building costs These are the costs incurred when connecting the

properties to infrastructure such as sewage,

electricity and water supply. Percentage based on

(Issac & O’Leary, 2012)’s estimate.


19

Contingency Costs 5% of sum of building and ancillary costs This is a buffer sum placed on the development in

order to mitigate for risk of any problems or setbacks

that might occur during the development phase

resulting in increased costs. Based on (Issac &

O’Leary, 2012)

Employer’s Agent £100,000 Based on (Ruparel et. Al., 2015) estimates

S106 Fees £2000 per bed Based on (Ruparel et. Al., 2015) estimates

Marketing and advertising fees 2% of the Net Development Value (NDV) These are the fees paid to estate agents when

marketing the properties. Based on (Ruparel et. Al.,

2015) estimates

Duration of Construction 2 years This is the BCIS estimated time to design, manage

and construct the development based on developing

Halls of Residence through Single Stage Tendering

for a Private organisation in the City of Westminster.

As a single project, the 90% prediction interval

ranges from 40 to 100weeks. For simplicity, the

duration is assumed to be 104 weeks or 2 years

(Appendix 12).

Interest Rate 5.5% This figure is based on the

(Mortgagesforbusiness.co.uk, 2016). Due to current

market uncertainty surrounding the potential

increase in the Bank of England base rate, this

percentage was increased slightly by 0.5%

Professional Fees 13.5% This is based on (Issac & O’Leary, 2012)

Developer’s Profit 15% Based on (Ruparel et. al. 2015)

Site Acquisition Cost 5% Stamp Duty Land Tax at 4% and 1% agent’s fees.

Value of £1 today Taken at 5.5% interest rate over a 2 year

construction period.

The relevant present value multiplier is deduced

from (Davidson, 2013)

Based on the information above, the Net Residual Valuation for the site can be calculated as demonstrated by Table 2 below.


20

TABLE 2: Net Residual Valuation for Enhanced mixed use Student Accommodation/Leisure Development

Development Item

Leisure

Rent per sqm £796

Area (sqm) 2500

Rent p.a. £1,990,000

Yield 4%

Yield Purchase in Perpetuity 25

GDV of Leisure £49,750,000

PBSA

No. of Units Rent

p/w

Calculation Gross Rent p/a

Classic Studio 250 £405 250x405x51weeks £5,163,750

One Bedroom Flat 80 £550 80x550x51weeks £2,244,000

Two Bedroom Flat 60 £660 60x660x51weeks £2,019,600

Gross Rental Income p/a £9,427,350

Operating Expenses @22.5% of Gross Rent 0.225xGross £2,074,017

Net Rental Income p/a Gross-Operating £7,353,333

Market Yield 5%

Yield Purchase in Perpetuity 20

GDV of PSBA £147,066,660

Calculations

A1 Total GDV Leisure+PBSA £196,816,660

A Developer's Profit @15% of Total GDV 0.15xA1 £29,522,499

B Purchaser’s cost @5% of Total GDV 0.05xA1 £9,840,833

C Net Development Value (NDV) A1-A-B £157,453,328

Construction

D Construction Cost PBSA @2203/sqm 2,203x10,000 £22,030,000

E Construction Cost Leisure @3162/sqm 3,162x2500 £7,905,000

F Demolition @£30/sqm 30x2,500 £75,000

G Clearance @£20/sqm 20x2,500 £50,000

H Total Construction and Site Clearance D+E+F+G £30,060,000

I Ancillary Costs @3% of total construction cost 0.03xH £901,800

J Sum of Construction and Ancillary Costs H+I £30,961,800


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K Contingency @5% of construction and ancillary 0.05xJ £1,548,090

L Total Construction Cost J+K £32,509,890

Fees

M Employer's Agent £100,000

N S106 @£2000 per bed for 450 beds 2000x450 £900,000

O Marketing @2% of NDV 0.02xC £3,149,066.56

P Sum of Fees N+O £4,149,067

Q Total Sub Cost L+P £36,658,957

Finance

R Interest on half of costs at 5.5% for 2 years 0.055x2x(0.5xQ) £2,016,242.61

S Professional Fees at 13.5% building and ancillary

costs

0.135xJ £4,179,843

T Interest on 2/3 of fees at 5.5% for 2 years 0.055x2x(2/3xS) £308,054.43

U Total Finance Cost R+S+T £6,504,140.04

V Gross Development Costs Q+U £43,163,096.60

W Gross Residual Value C-V £114,290,231.40

X Value of £1 today @5.5% in 2 years 0.8984524

Y Present Value of Site WxX £102,684,332.70

Z Site Acquisition costs at 5% 0.05xY £4,889,730.13

Net Residual Value Y-Z £97,794,602.57

Say:

£97,800,000

6. POSSESSION

It is assumed that there are two office buildings already on the site, with one (building A) let on a twenty five year FRI lease since 1992 paying a rent

of £75,000 per annum with a rateable value of £67,500, and the other building (building B) is let on a ten year FRI lease since 2007, however the

tenant has vacated the building. Both tenancies for both buildings are protected under the Security of Tenure of Part II of the Landlord and Tenant

Act 1954 (the Act).

Possession has already been granted for building B where the tenant has already vacated the premises. Thus, it can be assumed that no further

action will need to be taken in relation to this building, and in theory, demolition of the building can commence immediately in order to commence with

construction.


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In order to gain possession of building A, the landlord will have to serve a Section 25 notice under Part II of the Act. The notice will need to be served

in the “prescribed form” and should specify the exact “date of termination” of the tenancy [Section 25[1]). The notice should not be served more than

twelve months or less than six months before the “date of termination” (Section 25[2]). The notice should also include whether the landlord opposes

the granting of a new tenancy to the tenant (Section 25[6]) and if so, the landlord should include in the notice the ground(s) for opposing the grant of

a new tenancy, which are listed under Section 30(1) of the Act [Section 25(7)].

Based on the above, in order to gain possession of building A, a Section 25 notice will need to be served which includes all of the above information.

The ground under which the landlord is opposing the grant of a new lease falls under Section 30(1)(f) of the Act which states “that on the termination

of the current tenancy the landlord intends to demolish or reconstruct the premises comprised in the holding or a substantial part of those premises

or to carry out substantial work of construction on the holding or part thereof and that he could not reasonably do so without obtaining possession of

the holding”.

Therefore, as building A is under a twenty five year FRI fixed term tenancy that will expire in 2017 with two years unexpired, unless the terms of the

tenancy includes a form of “notice to quit”, such as a break clause that can be exercised by the landlord, then the “date of termination” specified in

the Section 25 notice should not be “earlier that the date on which apart from this Part of this Act the tenancy would have come to an end by effluxion

of time” (Landlord and Tenant Act 1954, Section 25[4]). Therefore, possession of the building cannot occur before the end of the tenancy in 2017,

provided that the landlord serves the Section 25 notice exactly twelve months before the contractual end of the tenancy.

Furthermore, under Section 37(1), the tenant is entitled by way of compensation, when quitting the property, from the landlord if the termination of the

tenancy falls under the “compensation case” under Section 37(1A), as the landlord has opposed the granting of a new tenancy in the Section 25

notice served based on the ground under Section 30(1)(f). The compensation for which the tenant is entitled to falls under Section 37(2)(a), which

states “where the conditions specified in the next following subsection are satisfied in relation to the whole of the holding it shall be the product of the

appropriate multiplier and twice the rateable value of the holding,” for which the condition falls under Section 37(3)(a) that the tenant has occupied

the property for a period of fourteen years for the purposes of a business carried out by him. As a result, the rateable value of the property is stated

to be £67,500. The appropriate multiplier is 1 as stated by Article 4 of The Landlord and Tenant Act 1954 (Appropriate Multiplier) Order 1990.

Therefore, the total compensation that the tenant is entitled to is £135,000 (67,500x2x1).


23

7. CONCLUSION

As it has been demonstrated, the mixed used Student Accommodation/Leisure development has been significantly enhanced when compared to the

original submission made under (Ruparel et. al., 2015). The biggest difference in my calculations are the total GDV of the development and the

correspdong Developer’s Profit. Under (Ruparel et. al, 2015) development GDV was £169,952,500, whereas under my calculations the total GDV

was £196,816,660, a difference of £26,864,160. This stark difference in the GDV also led to a substantial increase in the Developer’s Profit achieved,

for which under (Ruparel et. al, 2015) Developer’s Profit totaled £25,492,875 whereas under my calculations the Developer’s P rofit equalled

£29,522,499, a difference of £4,029,624.

The main reason for the significant changes mentioned above can be attributted to the use and assessment of comparables within the area; even

though similar comparables were assessed, the variety of accommodation that could be offered as part of the development was ignored and the more

uniform or “simpler” option of developing identical studios was presented instead. Thus, a signficant opportunity was missed in the group work.

Additionally, the difference in the yield used in my calculations and those in the group work also affected the total GDV of the site. In my calculations,

based on (Kinght Frank, 2015) prime yields in Zones 1-2 for PBSA is 4.5% with a 0.5% risk premium, whereas the group used the yield provided by

CBRE of 4.75% with a 0.5% risk premium.

It is important to note, however, as it is common with any residual valuation, several assumptions are made and several limitations are encountered.

Furthermore, the preferences of the individual developer affect the values of various variables within calculations that can lead to significant differences

between one residual valuation and another. Upon personal reflection and based on the results of my analysis into the Marylebone area, if I was to

carry out a personal development on the proposed site, I would have opted for super-prime residential properties due to the dramatic growth in

residential property prices, coupled with a continous regeneration of the area into becoming one of London’s most desirable areas.


24

REFERENCES

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https://www.accommodationforstudents.com/research_reports/research.pdf [Accessed 27 Jan. 2016].

BCIS, 2015. Average Prices. [Online] Available at: http://service.bcis.co.uk/BCISOnline/ [Accessed 26 Jan 2016]

BDO, (2015). Restaurants and Bars Report. [online] London: BDO LLP. Available at:

http://www.bdo.co.uk/__data/assets/pdf_file/0005/1350986/Restaurant-and-bars-report-2015.pdf [Accessed 27 Jan. 2016].

CBRE, (2015). Central London Property Market Review. [online] London: CBRE Research. Available at: http://www.cbre.co.uk/uk-en/research

[Accessed 22 Jan. 2016].

Colliers International, (2014). Eat & Drink London: Insight into the property market that serves London's food and beverage sector. [online] London:

Colliers International. Available at:

http://content.yudu.com/web/349r4/0A391vm/eatanddrink2014/flash/resources/index.htm?referrerUrl=http%3A%2F%2Fcontent.yudu.com%2Fweb

%2F349r4%2F0A391vm%2Featanddrink2014%2Findex.html [Accessed 22 Jan. 2016].

Davidson, A. (2013). Parry's valuation and investment tables. New York: Routledge/Taylor and Francis Group.

Foxtons.co.uk, (2016). House prices in Marylebone - View Marylebone property prices and values. [online] Available at:

http://www.foxtons.co.uk/living-in/marylebone/house-prices/ [Accessed 21 Jan. 2016].

Goodnenough College (2016). Residential Accommodation in Central London for Postgraduate Students - Rents. [online] Goodenough.ac.uk.

Available at: http://www.goodenough.ac.uk/students/rents [Accessed 27 Jan. 2016].

GVA|BiLFINGER, (2015). Central London office analysis. [online] London: GVA|BiLFINGER. Available at:

http://file:///C:/Users/Hussein/Downloads/Central%20London%20Office%20Analysis%20-%20Q3%202015.pdf [Accessed 22 Jan. 2016].

HESA, (2016). HE student enrolments by HE provider, level of study, mode of study and domicile 2014/15. London: Higher Education Student

Agency.

Homes & Communities Agency, (2015). Guidance on dereliction, demolition and remediation costs. London.

Housing.london.ac.uk, (2016). Central London Halls | University of London Housing Services. [online] Available at: http://housing.london.ac.uk/find-

accommodation/registered-independent-halls-residence/central-london-halls [Accessed 21 Jan. 2016].

Housing Services, (2015). Student Accommodation Survey. [online] London: University of London. Available at:

http://housing.london.ac.uk/sites/default/files/StudentAccommodationSurvey15.pdf [Accessed 26 Jan. 2016].


25

IPD | Levy, (2015). The London Markets Analysis 2015. [online] London: IPD | Levy. Available at: http://www.levyllp.co.uk/wp-content/uploads/LMA-

Report-2015-Interactive-PDF.pdf [Accessed 27 Jan. 2016].

Isaac, D. and O'Leary, J. (2012). Property valuation principles. Basingstoke: Palgrave Macmillan.

Iq-student-accommodation.com, (2016). London | iQ Student Accommodation. [online] Available at: http://www.iq-student-

accommodation.com/student-accommodation/london/iq-bloomsbury/look-around [Accessed 27 Jan. 2016].

JLL, (2015). London Student Housing Insights. [online] London: JLL. Available at: http://www.jll.co.uk/united-kingdom/en-gb/research/279/london-

student-housing-insights [Accessed 27 Jan. 2016].

Knight Frank, (2015). Marylebone London Market Focus 2015. [online] London: Knight Frank. Available at:

http://content.knightfrank.com/research/868/documents/en/london-market-focus-2015-3081.pdf [Accessed 21 Jan. 2016].

Knight Frank, (2014). Student Property. [online] London: Knight Frank. Available at:

http://www.knightfrank.co.uk/resources/residential/insights/knight-frank-student-property-insights_web.pdf [Accessed 27 Jan. 2016].

Landlord and Tenant Act 1954.

The Landlord and Tenant Act 1954 (Appropriate Multiplier) Order 1990.

Mansion Student, (2016). Accommodation Rates for Mansion Bloomsbury London | Mansion Student. [online] Available at:

http://www.mansionstudent.co.uk/property/london-student-accommodation/mansion-bloomsbury/rent/ [Accessed 27 Jan. 2016].

Mail Online, (2015). Why Marylebone has become one of the world's hottest new playgrounds. [online] Available at:

http://www.dailymail.co.uk/travel/article-3225524/Celebrity-central-Marylebone-one-world-s-hottest-new-playgrounds-listers-flocking-boutique-hotel-

bars-restaurants.html [Accessed 18 Jan. 2016].

Mortgagesforbusiness.co.uk, (2016). Property development finance rates and loans | Mortgages for Business. [online] Available at:

http://www.mortgagesforbusiness.co.uk/property-finance/customer/property-development-finance/property-development-finance-explained/rates-

loans/ [Accessed 28 Jan. 2016].

M&G Real Estate, (2015). Investing in the UK leisure sector. [online] London: M&G Real Estate. Available at: http://www.mandg.co.uk/-

/media/Literature/UK/Institutional/MG-RE-Magnify-UK-leisure-sector.pdf [Accessed 27 Jan. 2016].

Rightmove.co.uk, (2016). House Prices in Marylebone, Central London. [online] Available at: http://www.rightmove.co.uk/house-

prices/Marylebone.html [Accessed 21 Jan. 2016].


26

Ruparel, A., Fuller, A., Touloupis, A., Osmond, E., Alderson, L., Mineev, I., Hijazi, H., Wright, M. and Cinelli, T. (2015). Site Assembly &

Development: Group 7 Report. London: Group 7.

Savills, (2015). Spotlight UK Student Housing. [online] London: Savills. Available at: http://pdf.euro.savills.co.uk/residential---other/spotlight--uk-

student-housing-2015.pdf [Accessed 27 Jan. 2016].

Unite Students, (2016) a. Somerset Court. [online] Available at: http://www.unite-students.com/london/somerset-court [Accessed 27 Jan. 2016].

Unite Students, (2016) b. Woburn Place. [online] Available at: http://www.unite-students.com/london/woburn-place [Accessed 27 Jan. 2016].

Uk.urbanest.com, (2016). Student Accommodation in Hoxton | Urbanest Hoxton Apartments. [online] Available at:

http://uk.urbanest.com/uk/london/accommodation/king's-cross.aspx [Accessed 27 Jan. 2016].

Zoopla.co.uk, (2016). House prices in Marylebone. Property values - Zoopla. [online] Available at: http://www.zoopla.co.uk/house-

prices/marylebone/ [Accessed 21 Jan. 2016].


27

APPENDICES

Appendix 1 – Sample Meeting Agenda


28

Appendix 2 – Shopping Centre Viability Submission


29

Appendix 3 – Residential Development Viability Submission


30


31

Appendix 4 – Marketing Material


32

Appendix 5 – Marylebone Area

SOURCE: GOOGLE MAPS


33

Appendix 6 – Marylebone Road Commercial Occupiers

Source: Co-Star Focus and EGi

Company Name Address Premise Type

ONE MARYLEBONE 1 Marylebone Road Office

URBAN RETREATS 1 Marylebone Road Office

ARCADIA GROUP LTD 119 - 127 Marylebone Road Office

KINGFISHER PLC 119 - 127 Marylebone Road Office



ABBOTT MEAD VICKERS GROUP LTD 139 - 151 Marylebone Road Office

ANAND ASSOCIATES LTD 148 - 172 Marylebone Road Office

IN FOCUS OPTICIANS LTD 148 - 172 Marylebone Road Office

LEDOW HEALTH 148 - 172 Marylebone Road Office

LONDON CAR RENTALS 148 - 172 Marylebone Road Office

NATIONAL CAR PARKS LTD 148 - 172 Marylebone Road Office

PIP PRINTING 148 - 172 Marylebone Road Office

PIP PRINTING 148 - 172 Marylebone Road Office

RMP LTD 148 - 172 Marylebone Road Office

RODERICKS LTD 148 - 172 Marylebone Road Office

TOOL SHOP 148 - 172 Marylebone Road Office

YOU ME SUSHI 148 - 172 Marylebone Road Office

WESTMINSTER PRIMARY CARE TRUST 15 Marylebone Road Office

WESTERN EYE HOSPITAL 153 - 173 Marylebone Road Office

HERON INTERNATIONAL HOLDINGS 19 Marylebone Road Office

WHICH? LTD 2 Marylebone Road Office

AZZURI RESTAURANTS LTD 206 - 216 Marylebone Road Office



ENERGY DEVELOPMENT LTD 206 - 216 Marylebone Road Office

N C R 206 - 216 Marylebone Road Office

PIZZAEXPRESS PLC 206 - 216 Marylebone Road Office


34

SOCIAL CARE INSTITUTE FOR

EXCELLENCE

206 - 216 Marylebone Road Office

TERADATA UK 206 - 216 Marylebone Road Office

BNP PARIBAS REAL ESTATE UK 242 - 246 Marylebone Road Office

BNP PARIBAS REAL ESTATE UK 242 - 246 Marylebone Road Office

BRIDGESTREET ACCOMMODATIONS LTD 242 - 246 Marylebone Road Office

HCA UK LTD 242 - 246 Marylebone Road Office

HCA UK LTD 242 - 246 Marylebone Road Office

HELIUS ENERGY PLC 242 - 246 Marylebone Road Office

L F EUROPE 242 - 246 Marylebone Road Office

LEE & FEUNG 242 - 246 Marylebone Road Office

PETER BLACK FOOTWEAR &

ACCESSORIES LTD

242 - 246 Marylebone Road Office

ROODLANE MEDICAL LTD 242 - 246 Marylebone Road Office

SILVEREED H K LTD 242 - 246 Marylebone Road Office

TVM FASHION LAB LIMITED 242 - 246 Marylebone Road Office

ABERCORN SCHOOL 248 Marylebone Road Office

BELLERBYS EDUCATIONAL SERVICES 248 Marylebone Road Office

EMBASSY OF THE REPUBLIC OF LATVIA 248 Marylebone Road Office

FITNESS FIRST GROUP LTD 248 Marylebone Road Office

GALLIFORD TRY PLC 248 Marylebone Road Office

INTERMUNE UK & IRELAND LTD 248 Marylebone Road Office

PRISM FINANCIAL PRODUCTS LLP 248 Marylebone Road Office

DMA MEDIA LTD 29 Marylebone Road Office

ELARA CAPITAL PLC 29 Marylebone Road Office

PASSKEY INTERNATIONAL UK LTD 29 Marylebone Road Office

SAMVO LIMITED 29 Marylebone Road Office

X FINANCIAL SOLUTIONS LTD 29 Marylebone Road Office

GLOBE TAVERN (THE) 43 Marylebone Road Office

Melia Foods Berkeley Court Marylebone Road Office

Merlin Events Marylebone Road Office


35

Appendix 7 – Food and Beverage Rates in Marylebone

SOURCE: (COLLIERS INTERNATIONAL, 2014)


36

Appendix 8 – Privately Run Student Accommodation within 3.0 miles to Site

Student Accommodation Distance from

Site

Number

of Beds

Address

1. International Students House 1.0 miles 250 229 Great Portland Street W1W 5PN

2. iQ Bloomsbury 1.5 miles 171 200 Euston Road NW1 2DA

3. Mansion Bloomsbury 1.7 miles 101-105 Gower Street WC1E 6AA

4. Glodsmith House 1.8 miles 82 Park Village East NW1 3SX

5. Woburn Place (UNITE) 2.1 miles 460 19-29 Woburn Place Russell Square

WC1H 0LU

6. International Lutheran Student

Centre

2.1 miles 80 30 Thanet Street WC1H 9Qh

7. Somerset Court (UNITE) 2.2 miles 168 Aldenham Street Euston NW1 1AS

8. Helen Graham House 2.2 miles 300 57 Great Russell Street Holborn WC1B

3BA

9. Depot Point 2.3 miles 230 15-27 Britannia Street WC1X 9JD

10. Urbanest King’s Cross 2.4 miles York Way, King’s Cross N1C 4BD

11. Goodenough College 2.5 miles Mecklenburgh Square WC1N 2AB

12. St. Pancras Way (UNITE) 2.6 miles 11 St Pancras Way NW1 OPT

13. Beaumont Court 2.6 miles 1-45 College Grove Kings Cross NW1

ORW

14. Elizabeth Croll House

(UNITE)

2.9 miles 103 Vernon Square Penton Rise Kings

Cross WC1X 9AX

Source: Individual Websites and University of London Housing Services; Distances by Google Maps


37

Appendix 9 – Higher Education Establishments within 3.0 miles to Site

University Distance

from site

Total Number of

Students

International Students from

EU and Outside EU

Percentage

International

Full time

All

Percentage Full

Time

Total

International

Total Full

Time

Total

Students

1. University of

Westminster

0.3 miles 24,785 5,710 23% 15,645 63%

55,360 115,320 162,420

2. London Business

School

0.4 miles 1,790 1,235 69% 1,320 74%

3. Regent's University

London (Source: The

Independent

University Guide)

0.7 miles 5,000 - - - -

4. University College

London

1.3 miles 35,615 13,545 38% 28,145 79%

5. University of the

Arts

1.3 miles 17,775 8,145 46% 16505 93%

6. SOAS 1.6 miles 5,910 2,685 45% 4900 83%

7. Birkbeck,

University of London

1.6 miles 13,935 1,440 10% 3370 24%

8. London School of

Economics

2.4 miles 10,600 7,050 67% 10100 95%

9. King's College

London

2.5 miles 28,730 8,345 29% 20775 72%

10. City University

London

3.0 miles 18,280 7,205 39% 14560 80%

Source: HESA; Distances by Google Maps

Publicly Funded Privately Funded


38

Appendix 10 – Leisure Development Comparables and Residual Valuation

Comparables

1) Suite 103, 101-103 Baker Street, Marylebone, London, W1U 6LN - Chipotle

Ground Floor - 3,974 sq ft

Rent:150,000 p.a.

Rent psf: £38

Comments: New lease from June 2011, good covenant, however using the space as A2

2) 30-34 James Street, London, W1U 1EP - La Tasca

Basement & Ground Floor - 3,000 sq ft

Rent: £170,000 p.a.

Rent psf: £113

Comments: Let on a new lease in February 2006 for 27 year

3) 5 Baker Street, Marylebone, London, W1U 8ED - EAT


Rent: £150,000 p.a.

Rent psf: £93

Comments: New lease from April 2015, full build out with double frontage.


39

4) 74 Welbeck Street, London, W1G 0BA - Meat Liquor


Rent: £85,000 p.a.

Rent psf: £36.50

Comments: Lease renewed data unavailable. 3 star retail storefront

5) 10 Portman Square, London, W1 - New Development


Rent: £225,000 p.a.

Rent psf: £100 Ground Floor, £50 Basement

Comments: Outside the Act lease. 113,000 square foot modern office space arranged over 7 floors

6) 50 Baker Street, Marylebone, London, W1U 7BT - Indali Lounge


Rent: £210,000 p.a.

Rent psf: £44

Comments: 10 years left on lease from November 2014. Tenant seeking premium of £1m, benefits from lighting, fixtures and fitt ings


40

7) 48 Chapel Street, London, NW1 5DP - The Chapel Bar / Restaurant


Rent: £204,000


Comments: 15 years left on lease from May 2009, destination pitch, off Edgware/Marylebone Road

8) 110 Seymour Place, London, W1H 1NJ - Eddie’s

Basement & Ground Floor - 670 sq ft

Rent: £36,400


Comments: 20 year lease from December 2000, small site, poor quality space.

4.2 Residual Valuation

Ground Floor GIA (sq.m): 2500 sq.m

Comparable Yield: 4.00%

Comparable Rent psm based on average from comparables: £796

Rent p.a. (sq.m): £1,990,000

Rent p.a. (sq.m) per restaurant (8): £248,750

Multiplier (YP in perpetuity): 25.00

GDV: £49,750,000 say £50,000,000.00

Building Costs: 3,268 per sq.m

Total Build Costs: £8,170,000


41

Appendix 11 – BCIS Construction Costs

Appendix 12 – BCIS Construction Duration Calculator

sample development appraisal 2

Documents