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Pricing Mechanisms for Large, Phased Property Developments

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Abstract

This paper looks at various valuation methodologies (pricing mechanisms) commonly adopted by valuers and developers for large, phased property developments, and tests their suitability with respect to variable project times and equity funds employed in the project. Furthermore, this paper investigates a number of commonly used structured deal arrangements for such large scale projects and how they might enhance or diminish, the deemed land value and/or return to both the landowner and the developer.

To test the alternative pricing mechanisms, this paper has researched a number of relevant case studies, undertaken interviews with the developers of those sites and researched their various financial offers and how pricing was determined. The selected case studies presented in this paper provide insight into how the development site value was derived by different parties and how the financial offer might have been structured based on the assumptions provided. Based on the above research work, this paper puts forward for industry debate suggested valuation methodologies and their appropriate assumptions relating to escalations, hurdle rates and a profit split rationale for joint ventures.

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Date Published: 31 Jul 2013
Category: White Papers

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