When a site has been identified as surplus and estate owners have considered their objectives, including whether Homes for NHS Staff should be provided, it may be appropriate to commission an options appraisal.
The feasibility of a development project is determined by weighing up its risks and benefits, with a view to realising the identified outcomes required. The aim of this analysis is to evaluate the desirability, viability and feasibility of the development. This brings together stakeholder willingness to buy in to the project, the financial practicality and sustainability of the scheme, and the extent to which implementation of an option is possible.
Options appraisals are studies that seek to analyse the viability of different potential iterations of a project. They should be constructed with the key outputs or requirements of the project in mind and consider only options that are deliverable. As a rule, potential purchasers of a site, development partners and contractors will all price in the cost of risks that are suspected but unknown / unquantified and these will be reflected ultimately in the value of the site. Identifying risk early and understanding the potential impact on project objectives and mitigations will save valuable resources over the life of the project, avoid expensive abortive work and ensure that the real value of the site can be realised. The amount of time and money spent on an options appraisal should be commensurate with the size and complexity of the disposal opportunity to ensure that value for money is being achieved.
Key inputs
These studies need input from a number of sources which will be brought together coherently in the report.
Title review: Undertaking an early review of the title of the land to identify potential risks and barriers to development can avoid incurring abortive costs down the line. NHS estate owners may already be familiar with the title governing their own land. It is however, worth considering engaging legal advice early in order to identify potential obstacles to development that may deter potential purchasers or developers of the site. These obstacles can impair value and there may be opportunities to address the risks before bringing the site to market. Risks could include but are not limited to:
- Unclear ownership / title arrangements
- Restrictive covenants
- S106 Agreements relating to previous development
- Rights of way
- Rights to Light
- Easements and wayleaves
It should be noted that where the estate owner decides not to proceed with a planning application, it is still recommended to undertake a title review prior to marketing sites.
Planning assessment: If a change of planning use is required in order to bring the site forward for development, estate owners should consider early engagement of a planning consultant. They will be able to provide an appraisal of the potential for procuring a planning consent or whether strategic engagement with the LPA is likely to be required over a period of time in order to negotiate change of use. Such advice would be key to the risk assessment of deliverability that feeds into any options appraisal and should be shared with the lead consultant.
Architectural drawings: If appropriate, architects should be commissioned to provide a series of outline design options for the site in the form of a Density and Massing Study. Of key concern at this early stage is understanding the maximum and optimal extents to which the site can be developed within the planning policy framework. The initial designs should address matters of building height, density and unit mix in order to facilitate an economic evaluation of the options. This could include combinations of new build and refurbished elements if there are existing buildings which could be repurposed.
Costs: Where appropriate, cost consultants should be engaged to provide indicative high-level costs once the architectural drawings are available and the initial title review has been undertaken. Even with very basic design information, they will make reasonable assumptions in order to provide a cost plan for each projected design option. They will also give an indication as to a feasible programme timeframe for the project, so it is important to brief them on any programme parameters such as timing required for approvals or vacant possession. Based on the development history of the site, cost consultants may recommend that site surveys and investigations are commissioned at an early stage in order to quantify suspected risks relating to service routes, ground contamination or archaeology
Sales and rental values: For the most accurate options appraisal outputs, a valuation encompassing each outturn scheme option should be instructed once architectural drawings are available. Valuers will use comparable evidence to provide market sale and/or market rent values for the project as if it were being sold today.
Where estate owners have identified that delivering Homes for NHS Staff is a core project objective, consideration should be given to seeking advice from Affordable Housing Consultants who can undertake analysis on the relative value of different affordable housing tenures and provide advice on the opportunity to attract affordable housing grant. Understanding the impact of tenure mix, corresponding rent, sales values and grant opportunities at this early stage will support estate owners in maximising the value of the site, whilst delivering on core objectives.
Once the key inputs that will feed into the options appraisal have been established, the development or lead consultant would conduct detailed feasibility studies on each project scenario. They will run appraisals on tenure options for each architectural design. The aim will be to show the balance of costs vs. income, as well as analysing how best to achieve the key outputs identified at project inception.
A viability consultant can help to optimise outcomes by informing the scenarios to be modelled, the method of assessment, key assumptions and report’s recommendations.
A good options appraisal report will include a comprehensive review of both the potential risks and rewards for each option under review and will present this information in a clear and concise form supported by financial analysis including sensitivities and a clear risk matrix. The report should contain clear conclusions and recommendations that are fully supported by the evidence available.
Once the report has concluded, the outcomes can be analysed against the identified project requirements. Reviewing the recommendations in the report is key to ensuring they align with project objectives. The NHS estate owner should seek to understand the assumptions used and challenge these as necessary.
Whichever outcome is deemed most desirable, viable and feasible should be taken forward for further, detailed investigatory work. This preferred delivery model will then integrate with the business case to begin the process of taking the project forward for delivery.