developer’s budget calculation, Finance Basics

developer’s budget calculation, Finance Basics

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A prospective developer is considering purchasing a site for the construction of a ‘Business Village’ at a price of £750 000. It will provide a let-able office floor space of 17 500 m2. The estimated construction costs of the office block is £9 450 000. The contract period is assessed at 2 years; and that when fully let, the office block is expected to have an annual rental value of £1 400 000, with the landlord’s annual outgoings estimated at £300 000. Legal, agency and advertising fees are assessed at £420 000. The client requires a return of 9% on the office block. Professional fees are 12% of the construction costs, and finance is at 9%.
Set out a developer’s budget calculation to determine the profitability of the development.

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