How to Complete an Initial Assessment for Your Property Development Opportunities

Dorian Payne is the Managing Director of Castell Group. In this article, he talks about tips on appraising property development opportunities.

When you begin to look for new developments, you will quickly realise there are a lot of available ‘opportunities’ out there at any one time. How do you know if they can be progressed into a viable deal?

There are various ways developers go about appraising opportunities, and so I am going to share how we conduct our initial assessment within our full development appraisal. In my opinion, it is important to gain a holistic understanding of the development process and create your own appraisal system that correctly reflects your location, target market and deal criteria.

Full Development Appraisal:

I am unable to share the full appraisal methodology that we work through in this article, but you will broadly see how it looks from the point at which an opportunity enters our pipeline:

·       Initial Assessment (We also call it Key Constraints Check)

·       Planning Assessment

·       High-Level Numbers

·       Demand

·       Sensitivity Analysis

The process is not necessarily linear as sometimes we will jump straight to demand before moving forward. The key is to become familiar with the process so that over time you acquire an understanding of what renders a deal viable/unviable, and you can then quickly sift through ‘opportunities’ to ‘potential deals’.

Initial Assessment / Key Constraints Check:

The objective for this step is purely to consider the main constraints and/or information

that you need to know. This could render a site unviable without even looking at the numbers or demand; it is also important to understand the work involved for a site to potentially be developable.

This step is fundamentally a checklist of basic information gathering which does not have to be complicated. In fact, I believe a simple system is more effective and will greatly mitigate the risk of omissions and errors in your appraisal, which in development could save many months of time, effort and significant sums of money.

The typical checks we look for are as follows:

1.      Basic information

This is about gathering useful information on the site which we will need at a later date, such as:

·       Address

·       Size

·       Vendor and agent details

·       Type of land (greenfield, brownfield)

·       Previous uses

·       Vendor’s expectations

·       Vendor’s reason for selling

·       Have any previous offers or sales fallen through? If so, why?

·       Anything else deemed relevant

This section is typically completed from memory when dealing with the vendor or the agent, and then notes added. You can acquire a great amount of information from just asking questions, especially about expectations. After a period of doing appraisals and deals in your area and to your criteria, you’ll quickly understand if an opportunity is overpriced without even going through the rest of the appraisal.

2.      Basic planning check

In this section, we are looking briefly into the planning side of things. Most of the opportunities we look at have no current planning permissions, so we want to quickly understand where the site sits in terms of the local authority’s local development plan.

We are looking to see if the site is within the specified development boundary, if there are any restrictions in the area or if the area has been designated for anything other than residential development. The local authorities provide this information and some of them have interactive proposal maps which make it easy to identify constraints. This is very important as we look at potential sites that have specifically been designated as open space, and others that have been designated as commercial.

We are also looking to see if the site is situated within a conservation area, or if there is an existing building and whether it is listed and in what category.

We also check neighbouring properties in terms of their design and scale in order to work out the overlooking distances. This will ensure that our initial sketch is within areas that are developable.

3.      Flooding

A quick but vital and free check we carry out is to establish the site’s flood potential. In Wales, we do this by viewing the Natural Resources Wales (NRW) developer’s advice map and checking what rating the site lands in. England also has a flood map that you can access via Googling ‘flood map for planning’.

If the site lands in a flood zone, then initially I would advise you to reach out to a flood consultant because a flood consequence (or risk) assessment may be needed. Local authorities take differing views on acceptable flood levels for differing types of users (residential or commercial). This is a typical example of something that can render the site unviable or too risky to start with. If the vendor wants an unconditional offer and the site is in a risky flood zone, with no planning permission, you could be running a high risk in progressing with the site.

4.      Ecology & Arboriculture

When assessing the site, you should be looking at the potential impact the development will have on ecology and trees. It may not be high on your agenda, but it’s a material planning consideration, and it is unlikely you will be granted permission if it would result in a detrimental impact on wildlife, plants and trees (which could be protected). From our experience, this is getting even tougher to satisfy at the planning stage and so it is now something we consider at the beginning.

You may not know exactly what to look for so it’s wise to have good consultants on board to quickly sift through opportunities. However, it is not viable to pay for a consultant’s advice or assessments on every site, or at least until it progresses to a clear potential deal.

Until you have built up a better understanding of ecology and arboriculture requirements in your area, you can assess the site from satellite maps and walk through the site. You can take note of existing buildings that bats and/or owls may inhabit, and you can see larger/older looking trees and hedges that may be protected, and existing biodiversity on the site where protected species may also be in situ.

Typical protected species can include the following:

·       Bats

·       Owls

·       Breeding birds

·       Badgers

·       Great crested newts, toads, otters, invertebrates

·       Protected plants

5.      Access

Access alone is very important and can render a prime site undevelopable, hence is one of the first things we look at. We are typically looking to see if the site can achieve safe access and egress. Without getting into the heavy technical side of things, ensure you spend some time trying to build your knowledge of access and highway-related problems. You can read the requirements set out in the local authority’s supplementary planning guidance and any highway technical design guide they may have published.

Don’t worry too much about fully understanding the technical side of highway requirements at this moment, as this stage is about identifying obvious problems. Our highway engineer always reviews the scheme before we commit to the deal.

The things we look for are as follows:

1.      Is there, or can there be, wide enough access?

a.      Specified widths vary between local authorities and with size of development. The size we typically look for is 5.5 m and we may also need extra space for a pavement.

2.      Visibility splay

a.      There needs to be sufficient, unobstructed space around your site entrance junction, allowing drivers to see potential traffic in the road.

b.      This is typically where you may cross third-party land which may have obstructions such as hedges or boundary walls.

c.       Working out the visibility splay depends on the speed of the main road you are exiting onto. Your local authority highways department will stipulate the required ‘Y’ length in meters for different road speeds. The ‘X’ is typically 2.4 m but can be reduced, if deemed acceptable by highways.

d.     

3.      Does any part of the access road or visibility splay cross over neighbouring or third-party land?

a.      Potential ransom problem.

4.      Connectivity around the site

a.      We have had sites that are situated within the development boundary with sufficient parking and acceptable access/egress, but the roads didn’t have pavements in the village due to the age. Thus, our application was declined due to poor connectivity.

5.      Parking standards and ability to provide enough spaces

a.      Also remember, just because you have sufficient parking doesn’t mean the planning authority will like and approve its design.

6.      If seeking reduced parking, is the area ‘sustainable’?

a.      Is it within walking distance to transport links, shops etc?

b.      Note – some local authorities don’t use sustainability assessments to justify reduction in parking so it may not be clear, and a pre-app with highways should be sought.

7.      Potential build constraints (city centre, no parking, no site storage etc)

a.      The licenses and agreements needed to be obtained may be a key consideration in terms of the timing of the development and costs.

6.      Basic legal check

If the above checks haven’t rendered the deal unviable or too risky yet, we then purchase and look at the registered legal title plan and register for the opportunity. They cost £3 each from Land Registry. If you’re using a system to find opportunities, they will normally have a feature to allow you to buy the plans through the software, which saves time.

The title plan tells us the extent of the site and if there are any abnormalities, such as unregistered land and general boundaries. It is useful to walk the land with the vendor to confirm the boundaries are indeed as they are registered at the Land Registry. We’ve been involved in two deals with boundary abnormalities, and it can be a huge inconvenience.

The title register tells us the key information about the land, such as the registration number, vendor details and address, potentially how much they paid for it, any mortgages and rights, restrictions and obligations attached to the land. If you cannot understand what the register says, it’s wise to get it checked out by your commercial/land solicitor. If you have a good relationship, they probably won’t charge you.

7.      Deal Criteria

I have mentioned the importance of having deal criteria for your business in previous publications. This will keep you focused and effective because, as highlighted above, there are many ‘opportunities’ and it is paramount to sift through them as efficiently as possible. This will enable you to capitalise on the real potential deals out there.

A good set of criteria will include requirements for the deal to be a certain size, within a defined location, within a budget, and include other requirements which may not be a planning consideration.

It is beneficial to have some collaborations or partnerships with land sourcers or other developers so you can pass onto them potential opportunities that are outside of your criteria. This will not only ensure you do not waste valuable resources on deals not suited to your business but will also ensure you do not feel like you’re leaving ‘money on the table’, so to speak.

Once we have completed the above assessment, we will be in a much better position to make a decision on whether to progress the scheme or not.