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					     Hanover Street Project - Construction



HANOVER STREET PROJECT

    Residual site valuations




                      1
                    Hanover Street Project - Construction



                        Table of contents

1   Overview

2   Demolition & Re-Build

3   Retaining Façade

4   Economic Risk Analysis

5   Sensitivity Analysis




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                             Hanover Street Project - Construction



1. Overview
The attached documents are the two bids from our company regarding the Hanover Street
Development. One of the bids is for a Façade Retention Scheme and the other is a Demolition
and Reconstruction development. The spreadsheets attached show the residual values for each
proposal and show in detail how the relevant figures were reached. The two following section
give a justification to the assumptions that have been made. The figures in the breakdowns are
directly related to local and national trends and statistics.

Also attached are an Economic Risk Analysis and a Sensitivity Report.



2. Demolition & Re-Build

NEW BUILD AND DEMOLITION: ASSUMPTIONS MADE IN VALUATION
      OF VARIABLES FOR RESIDUAL VALUE CALCULATION


      VARIABLE                               VALUE                             RATIONALE
RENTAL VALUE                    £20.00 psf                           The office space will be let as
                                                                     category Grade A. A rate was
                                                                     taken from an average of Grade
                                                                     A office rents in Livepool City
                                                                     Centre in 2007.
                                                                     As the building’s main purpose
                                                                     will be for office use the retail
                                                                     element of the building was
                                                                     ignored at this point.
MANAGEMENT CHARGE               3% p.a.                              This is in line with the current
                                                                     industry norm for charges levied
                                                                     by property management
                                                                     companies.
GROUND RENT                     £5000 p.a.                           This is in line with standard
                                                                     charges on other Grade A office
                                                                     rentals.
YIELD RATE                      4%                                   The Yield rate has been reduced
                                                                     from the client’s original
                                                                     estimate of 8%. A percentage
                                                                     of 4% was considered a more
                                                                     appropriate reflection of the risk
                                                                     involved in the development.
                                                                     The risk is reduced due to the
                                                                     current high demand for office
                                                                     space in Liverpool City Centre –
                                                                     which is predicted to continue
                                                                     until at least 2011.




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                        Hanover Street Project - Construction


BUILDING COSTS            £148 psf                              The superficial area method was
                                                                used to calculate building costs
                                                                per square ft. A rate was taken
                                                                from a building of similar type
                                                                on the BCIS.
                                                                The building’s details were
                                                                recorded as follows:
                                                                New Build:
                                                                320.1 Office with shop:
                                                                An upper quartile average was
                                                                taken to account for the building
                                                                being located in a city centre
                                                                site with space constraints.
                                                                This figure was then adjusted to
                                                                take into account its location in
                                                                the North West and the
                                                                beginning of the construction
                                                                works, assumed as January
                                                                2008.
PROFESSIONAL FEES         8%                                    This is in line with industry
                                                                averages for a building of this
                                                                value.
CONTINGENCY               6%                                    This was considered an
                                                                appropriate allowance
                                                                considering the nature of the
                                                                construction/demolition and
                                                                following the risk assessment.
DEMOLITION                £250,000                              Enquires were made to local
                                                                demolition companies and an
                                                                average price was indicated for
                                                                the demolition/removal of
                                                                debris.
LETTING AGENCY FEE        4.5%                                  This is in line with local letting
                                                                agents fees.
PROMOTION/ADVERTISING     £2000                                 It is assumed a specific firm will
                                                                be targeted as a tenant. This
                                                                will reduce the required
                                                                advertising costs..
PROFIT                    15%                                   This profit was deemed
                                                                reasonable, reflecting the risk
                                                                inherent in a speculative
                                                                commercial development.
STAMP DUTY                4%                                    This is in line with HMLR
                                                                charges for the purchase of land
                                                                valued over £500,000.
AGENTS FEES               1%                                    This is in line with current estate
                                                                agency fees.
LEGAL FEES                0.5%                                  This is in line with current legal
                                                                fees.




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                      Hanover Street Project - Construction



3. Façade Retention

    RETAINED FACADE: ASSUMPTIONS MADE IN VALUATION OF
        VARIABLES FOR RESIDUAL VALUE CALCULATION


      VARIABLE                       VALUE                              RATIONALE
RENTAL VALUE            £14.50 psf                            The office space will be let as
                                                              category Grade B. A rate was
                                                              taken from an average of Grade
                                                              B office rents in Livepool City
                                                              Centre in 2006.
                                                              As the building’s main purpose
                                                              will be for office use the retail
                                                              element of the building was
                                                              ignored at this point.
MANAGEMENT CHARGE       3% p.a.                               This is in line with the current
                                                              industry norm for charges levied
                                                              by property management
                                                              companies.
GROUND RENT             £3000 p.a.                            This is in line with standard
                                                              charges on other Grade B office
                                                              rentals.
YIELD RATE              4%                                    The Yield rate has been reduced
                                                              from the client’s original
                                                              estimate of 8%. A percentage
                                                              of 4% was considered a more
                                                              appropriate reflection of the risk
                                                              involved in the development.
                                                              The risk is reduced due to the
                                                              current high demand for office
                                                              space in Liverpool City Centre –
                                                              which is predicted to continue
                                                              until at least 2011.
BUILDING COSTS          £121 psf                              The superficial area method was
                                                              used to calculate building costs
                                                              per square ft. A rate was taken
                                                              from a building of similar type
                                                              on the BCIS.
                                                              The building’s details were
                                                              recorded as follows:
                                                              Rehabilitation/Conversion:
                                                              320.1 Office with shop:
                                                              An upper quartile average was
                                                              taken to account for the building
                                                              being located in a city centre
                                                              site with space constraints.
                                                              This figure was then adjusted to
                                                              take into account its location in
                                                              the North West and the
                                                              beginning of the construction
                                                              works, assumed as January
                                                              2008.
PROFESSIONAL FEES       8%                                    This is in line with industry
                                                              averages for a building of this
                                                              value.
CONTINGENCY             10%                                   This was considered an



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                              Hanover Street Project - Construction


                                                                      appropriate margin to take into
                                                                      account the unpredictable nature
                                                                      of refurbishment/retaining the
                                                                      façade.
LETTING AGENCY FEE              4.5%                                  This is in line with local letting
                                                                      agents fees.
PROMOTION/ADVERTISING           £5000                                 This is a reflecting of the
                                                                      increased advertising required to
                                                                      secure a tenant for a refurbished
                                                                      office with a retained façade.
PROFIT                          15%                                   This profit was deemed
                                                                      reasonable, reflecting the risk
                                                                      inherent in a speculative
                                                                      commercial development.
STAMP DUTY                      3%                                    This is in line with HMLR
                                                                      charges for the purchase of land
                                                                      valued between £250,000-
                                                                      £500,000.
AGENTS FEES                     1%                                    This is in line with current estate
                                                                      agency fees.
LEGAL FEES                      0.5%                                  This is in line with current legal
                                                                      fees.



4. Economic Risk Analysis
The Economic Risk Analysis is an effective way to present the risks that are associated with
the project. It catalogues the implementing risks and allows them to be managed easily. As
well as showing the more critical of the risks it puts in place a control strategy in order to
facilitate that risk.

5. Sensitivity Analysis
We have also included a Sensitivity Analysis. This basically shows how the residual value of
both proposals is affected by a change of the variables in the breakdown. We have allowed for
a spread of +/- 10%.




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posted:9/4/2011
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