Gross development value built from an accommodation schedule and an investment valuation, with the checks a lender's valuer runs first.
Gross development value is what the completed scheme would sell for: each unit for sale at its achievable price, plus each let element capitalised as rent divided by the investment yield, net of the purchaser's costs an investor would deduct. On an illustrative scheme of 60 flats over a shop, the flats are worth 22,980,000 and the shop 1,037,165, a GDV of 24,017,165. Every other line of the appraisal, the land bid included, is calculated from that number.
Worked in full in The Real Estate Development Manager by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
Sixty flats in three types over a 300 m² ground-floor shop, which the developer will let and sell to an investor on completion. Prices are achieved prices from comparable evidence, not asking prices, and areas are net sales areas, the area a buyer pays for. All figures are illustrative and carry no currency; the scheme is a close cousin of the all-residential one whose land is valued in how to calculate residual land value, which takes a round GDV of 24.0 million as its starting point; this article shows how such a figure is built.
| Unit type | Units | m² each | Achieved price | Price per m² | Value |
|---|---|---|---|---|---|
| One-bed | 24 | 50 | 315,000 | 6,300 | 7,560,000 |
| Two-bed | 30 | 70 | 410,000 | 5,857 | 12,300,000 |
| Three-bed | 6 | 90 | 520,000 | 5,778 | 3,120,000 |
| Residential | 60 | 3,840 total | 383,000 average | 5,984 | 22,980,000 |
Step 1: the units for sale. Multiply each type's count by its achieved price and add. Check the price per m² by type against the evidence: smaller units sell for more per m², here 6,300 for a one-bed against 5,778 for a three-bed, and a schedule where that slope is missing is usually a schedule priced from a single rate.
Residential value = Σ units × price = 7,560,000 + 12,300,000 + 3,120,000 = 22,980,000
Excel: =SUMPRODUCT(B2:B4,D2:D4)
Step 2: the let element. The shop is valued as an investment: annual rent divided by the yield an investor would accept gives the gross capital value, and dividing by one plus the purchaser's costs gives the price the investor would actually pay.
Rent = 300 m² × 240 = 72,000 a year
Gross value = 72,000 / 6.5% = 1,107,692 (a multiplier of 15.38)
Net value = 1,107,692 / 1.068 = 1,037,165, a net initial yield of 6.94% on the price paid
Excel: =B6/B7/(1+B8)
Step 3: add them.
GDV = 22,980,000 + 1,037,165 = 24,017,165; residential 95.7%, commercial 4.3%
Sale costs, agents and legal fees on disposal, are a separate line below GDV in most appraisals: at 2 per cent they are 480,343, leaving a net realisation of 23,536,822. Keep them out of the GDV figure itself, so that GDV stays comparable with the evidence and with other schemes.
The scheme sells 4,140 m² in total, residential and commercial, for an average of 5,801 per m². On a gross internal area of 5,049 m², at a net-to-gross ratio of 82 per cent, GDV is 4,757 per m² of building. Those three figures, value per unit, per m² sold and per m² built, are the ones a lender's valuer and a land agent will test first.
| Residential prices | Retail yield 6.0% | 6.5% | 7.0% |
|---|---|---|---|
| −5% | 22,954,596 | 22,868,165 | 22,794,082 |
| As appraised | 24,103,596 | 24,017,165 | 23,943,082 |
| +5% | 25,252,596 | 25,166,165 | 25,092,082 |
The flats dominate: 1 per cent on residential prices is 229,800, 5 per cent is 1,149,000, while the full range of retail yields moves GDV by 160,514 and a 25 basis point move by 41,487. That asymmetry decides where diligence time goes. And it is magnified downstream: in the residual land value article each 1 per cent of GDV is worth 153,097 of land.
GDV assumes an orderly sale, unit by unit, over a realistic sales period. If the flats are instead sold in one block to a rental investor, the price per unit falls because the buyer is pricing an income stream and taking the letting risk. At an illustrative 10 per cent block discount the residential value becomes 20,682,000 and GDV 21,719,165, 2,298,000 less. That is not necessarily a worse outcome: a forward sale removes the sales risk and the six months of sales period after completion, and with it a share of the finance cost. But it is a different GDV, and the appraisal must say which one it uses before the profit target is applied to it.
The way a GDV error flows through to the land bid is shown in how to run a sensitivity analysis on a development appraisal, and the appraisal itself, from GDV to land value, is in the free workbooks for The Real Estate Development Manager.
Before. GDV is the gross value of the completed scheme; agents' and legal fees on disposal are deducted as a separate line to reach the net realisation. On an illustrative GDV of 24,017,165, sale costs at 2 per cent are 480,343 and the net realisation is 23,536,822. Keeping them separate lets GDV be compared directly with the market evidence.
As an investment sale: annual rent divided by the investment yield gives the gross capital value, which is divided by one plus purchaser's costs to give the net price. A shop let at 72,000 a year at a 6.5 per cent yield is 1,107,692 gross and 1,037,165 net at 6.8 per cent purchaser's costs, a net initial yield of 6.94 per cent.
Net sales area for units sold, since that is what buyers pay for. Applying a sales rate per m2 to gross internal area overstates value by the inverse of the net-to-gross ratio: at 82 per cent, pricing 60 flats at 5,984 per m2 on gross area gives 28,024,390 instead of 22,980,000, an overstatement of 22.0 per cent.
This article is one calculation from The Real Estate Development Manager. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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