9: A to Z of Raising Commercial Finance - G

Please note: with the market changing so quickly due to the current Covid-19 Pandemic, the content could be out of date at the time of listening. Email - [email protected]  Telephone - 07951 802602  https://www.facebook.com/thepropertyfinanceguy/ Please email me any questions, that you may have, and I will endeavour to answer them on the next podcast. Please also let me know if there is anyone that you would like me to interview, or if you would like to be interviewed yourself on the podcast.  These podcasts are not to be used in place of financial advice. You must take independent financial advice from a qualified independent financial advisor. These podcasts are for information purposes only G is for Gross Development Value.  For Property Developers, the Gross Development Value (GDV) is one of the most important aspects that they will monitor throughout the course of a project. It helps to highlight the end valuation of a Development, Conversion or Refurbishment. The GDV is the estimated value that a property or new development would fetch on the open market, if it were to be sold in the current economic climate. When the valuation is carried out, the Lenders will not only take into account the current economic climate, but they will also take into account the future economic climate. For many Developers and Investors at the moment, this is having a negative effect as Valuers are obviously taking Brexit into account. Which is resulting in more conservative GDV valuations.  When instructing a Valuer to carry out a valuation on the property, the Valuer will look at current property sales prices and recent transactions in the area for similar properties. These would be carefully analysed by the Valuer, and they would then use this data to provide a comparable estimate of what properties in the same area are selling for and therefore what you could expect your property to fetch. If, however, the Developer is not looking to sell the properties, then sales prices are not going to be of interest. Instead, establishing rental values and recent local lettings of similar properties will be of primary interest to the Developer, Lender and Valuer. This is because on completion of their project, the Developer and the Lender will want comfort that the properties being converted/refurbed or built, will have a rental demand. The last thing a Developer or Lender will want, is empty properties!  If refinance is the exit then the Valuer will have to look at recent lettings in the same area to find comparable rental values. This information can usually be obtained from local lettings agents. This will help to establish how much the developer can expect to rent the properties for, which can then be used to ensure that the refinance of the properties onto a mortgage will be affordable to the Developer. The method of development appraisal that incorporates the GDV calculation is called the residual method of valuation. This is the most common and most basic formula to estimate the general value of the site is as follows: Land = GDV – (Construction + Fees + Profit) In this calculation:-  GDV = Gross development value as determined by the Valuer Construction = Cost of Development or Conversion (Build Costs) as determined by a Quantity Surveyor Fees = Borrowing costs and professional fees Profit = Developers profit required to make the Scheme feasible (this is usually 20-25% as a minimum)