Performance metrics and required returns for UK real estate development schemes

Crosby, Neil; Devaney, Steven; Wyatt, Peter

doi:10.1080/09599916.2020.1720269

Cited by 7 publications

(12 citation statements)

References 21 publications

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“…Crosby et al. (2018, 2020) and Coleman et al. (2012) found a similar result in surveying UK-based developers.…”

Section: Discussionsupporting

confidence: 59%

“…It was found that trader developers, and particularly residential developers, preferred non-cash flow ratio-based metrics such as MDC and RLV rather than the traditional DCF and NPV decision tools. Crosby et al (2018Crosby et al ( , 2020 and Coleman et al (2012) found a similar result in surveying UK-based developers. The typical cash flow pattern in projects by trader developers involves large capital outflows at the outset and throughout the construction stage, with large inflows upon practical completion.…”

Section: Conclusion 61 Summary Of Findingssupporting

confidence: 53%

“…• investor developers are more likely to use the payback period as a hurdle rate, as are trader developers and development managers in their use of MDC and specific hurdle rates as a part of a go/no-go decision trader developers adopt a higher percentage of IRR as a hurdle rate metric than do the other key developer types • trader developers deviate further from the accepted financial theory of using cashflowbased metrics in hurdle rate selection than do investors developers. It was found that trader developers, and particularly residential developers, preferred non-cashflow ratio-based metrics such as MDC and RLV rather than the traditional DCF and NPV decision tools.Crosby et al (2018Crosby et al ( , 2020 and Coleman et al (2012) found a similar result in surveying UK based developers. The typical cashflow pattern in projects by trader developers involves large capital outflows at the outset and throughout the construction stage, with large inflows upon practical completion.…”

mentioning

confidence: 69%

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Feasibility practices of types of property developers

Moorhead

Armitage

Skitmore

2022

JPIF

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PurposeThe purpose of this study is to analyse the current relationships between developer characteristics in terms of dominant property type (residential, commercial, retail, industrial, tourism, “other”), ownership (publicly listed, publicly unlisted, private, government), organisational structure (speculative-trader, investor developers, development managers) and size (small, medium, large) in the frequency of use and required minimum value of hurdle rate metrics.Design/methodology/approachA questionnaire survey of 225 Australian and New Zealand trader developers, development managers, investors, valuers, fund managers and government/charities/other relating to the feasibility practices of different types of Australia/New Zealand property development companies.Findings(1) Residential dominant developers are more likely to use margin on development cost (MDC) required to have a higher minimum internal rate of return (IRR) percentage; (2) investor developers are more likely to use the payback period as a hurdle rate, and specific hurdle rates as a part of a go/no-go decision; (3) trader developers adopt a higher percentage of IRR and deviate further from accepted financial theory in hurdle rate selection; and (4) national property development organisations in multiple geographic regions use qualitative frameworks more as a decision-making process and use MDC less as a hurdle rate.Practical implicationsThe study is limited to a sample of property practitioners working in Australia/New Zealand at the time of data collection in 2016 and, further empirical research is needed spatially and temporally to determine the extent of the findings. Further research is also needed with small- to medium-sized development organisations' on the extent to which they should use different metrics in project selection and for an improved understanding of the technical and attitudinal difficulties facing their current adoption.Originality/valueFirst study to examine the feasibility practices of different types of Australia/New Zealand property developers.

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“…Crosby et al. (2018, 2020) and Coleman et al. (2012) found a similar result in surveying UK-based developers.…”

Section: Discussionsupporting

confidence: 59%

Section: Conclusion 61 Summary Of Findingssupporting

confidence: 53%

mentioning

confidence: 69%

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Feasibility practices of types of property developers

Moorhead

Armitage

Skitmore

2022

JPIF

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“…These assertions imply that this asymmetric knowledge and understanding are held within the developer/landowner community and therefore bias the outcomes in ways that are not easy to prove. The fall in affordable housing provision by the seven major housebuilders between 2010 and 2017 from 40% to 19% of total completions while their average return on capital employed rose from under 7% to over 32% is suspicious but not incontrovertible (Crosby, et al, 2019). However, despite the lack of expertise generally within councils identified in the literature above and the concerns about viability and reducing developer contributions, one council faced with a number of these issues decided that "more needed to be done" (Quote from email from Islington Borough Council Planning Officer).…”

Section: Figure 1 Herementioning

confidence: 96%

What is a ‘competitive return’ to a landowner? Parkhurst Road and the new UK planning policy environment

Crosby

Wyatt

2019

Journal of Property Research

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In the UK, contributions from landowners towards the provision of affordable housing are obtained through a process of negotiation that centres on the financial viability of each development proposal. National Planning Practice Guidance, first published in 2014 and recently revised in 2018 and 2019, provides the Government framework for these negotiations and sets parameters for the financial viability appraisals. Failure to achieve levels of affordable housing set out in local plans has been attributed to 'gaming' strategies employed by landowners and developers within viability negotiations. This paper examines how planning guidance has influenced financial viability appraisals.A key issue within these appraisals is the determination of a suitable return to the landowner, known as Benchmark Land Value. Using a case study approach to investigate two planning appeals and a subsequent High Court decision concerning a residential development site in London, this paper demonstrates how planning policy and practice guidance on viability can lead to reduced planning obligations being delivered. It identifies the technical concerns that need to be addressed to enable appraisals to determine land prices that are fair to landowners, whilst delivering policy-compliant levels of affordable housing, and discusses whether the revised National Planning Guidance has made those changes.

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“…Their results help researchers to find the best practical tools suitable for the field of study. Crosby, Devaney, and Wyatt (2020) have investigated market practices regarding performance metrics and return expectations both for residential and commercial real estate development in the UK, exploring what is considered to be appropriate return and how this varies according to the type and duration of the scheme and the method of appraisal used. The authors underline the uncertainty and financial risks associated with development as an activity.…”

Section: Croatian and Comparative Public Administrationmentioning

confidence: 99%

Involving the Public in the Assessment of Community Real Estate Property

Dmytryshyn

2022

HKJU-CCPA

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The paper argues for the need to involve the public in decision-making on abandoned community real estate property in small communities with limited financial resources. This can be achieved by giving the public the opportunity to express their opinion via a survey. For this purpose, a specific approach was developed which involves conducting a survey and evaluating the results. A particular weighting factor is given for each chosen rank of indicator. A system of 50 indicators for five different groups (interior, exterior, environment, historical and cultural value, and finance) is proposed. The indicators are divided into 38 incentives and 12 disincentives, in accordance with their impact on the final assessment of the real estate property. An example of an assessment is given and it is proposed that the survey results be categorised and analysed based on the age of respondents. The aim of this paper is to develop a way of investigating the opinion of the local community regarding abandoned municipal real estate property in the cheapest and easiest way, applicable even in small villages. Not only will this ensure the assessment is carried out, it will also involve more people in community life and increase their interest. Public participation in solving community affairs is crucial when it comes to increasing the interest of residents in the life of the territory in particular and the effective development of civil society in general. At the initial stage citizens may only engage in one-time participation; however, in the future a critical mass of caring locals will be formed who can bring forward new ideas and offer innovative solutions.

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Performance metrics and required returns for UK real estate development schemes

Cited by 7 publications

References 21 publications

Feasibility practices of types of property developers

Feasibility practices of types of property developers

What is a ‘competitive return’ to a landowner? Parkhurst Road and the new UK planning policy environment

Involving the Public in the Assessment of Community Real Estate Property

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