Erin House Financial Viability Appraisal
Erin House Financial Viability Appraisal
SALES VALUES
Two 3-bedroom maisonettes (92-94m2) @ £275,000 = £550,000 Three 2-bedroom units (84-92 m2) @ £275,000 = £825,000 One 3-bedroom maisonette (115 m2) @ £375,000 = £375,000
Total: £1,750,000
One 3-bedroom maisonette (92-94m2) @ £275,000 = £275,000 Two 2-bedroom units (46-47 m2) @ £175,000 = £350,000 Three 2-bedroom units (84-92 m2) @ £275,000 = £825,000 One 3-bedroom maisonette (115 m2) @ £375,000 = £375,000
Total: £1,825,000
Options 3 and 4 (8 Dwellings):
Four 2-bedroom units (46-47 m2) @ £175,000 = £700,000 Three 2-bedroom units (84-92 m2) @ £275,000 = £825,000 One 3-bedroom maisonette (115 m2) @ £375,000 = £375,000
Total: £1,900,000 PURCHASE PRICE OF PROPERTY Erin House was purchased in April 2023 for £318,000 COSTS PER SQ M Average building costs shown, based upon 567.2 m2 for all units are: £2,398.00 - £2431.50 / m2
0% Contingency 5% Contingency 10% Contingency
Building Expenses £1,360,200 £1,360,200 £1,360,200 Purchase Cost £ 318,000 £ 318,000 £ 318,000 Commuted Sum? £ N/A £ N/A £ N/A
- Contingencies £ 0 £ 68,000 £ 136,000 Total Costs £ 1,678,200 £ 1.746,200 £ 1,814,200 Less Sales Value £ 1,750,000 £ 1,750,000 £ 1,750,000 Total Profit/Loss £ 71,800 £ 3,800 £ - 64,200 Profit/Loss/Unit £ 12,000 £ 600 £ - 10,700 Margins 4.3% 0.2% - 5.9%
Option 2 (7 Dwellings) 0% Contingency 5% Contingency 10% Contingency Building Expenses £1,371,950 £1,371,950 £1,371,950 Purchase Cost £ 318,000 £ 318,000 £ 318,000 Commuted Sum? £ N/A £ N/A £ N/A
- Contingencies £ 0 £ 69,000 £ 138,000 Total Costs £1,689,950 £ 1,758,950 £ 1,827,950 Less Sales Value £ 1,825,000 £ 1,825,000 £ 1,825,000 Total Profit/Loss £ 135,050 £ 66,050 £ - 2,950 Profit/Loss/Unit £ 19,300 £ 9,400 £ - 400
- Option 3 (8 Dwellings with Commuted Sum)
0% Contingency 5% Contingency 10% Contingency
Building Expenses £ 1,379,200 £1,379,200 £1,379,200 Purchase Cost £ 318,000 £ 318,000 £ 318,000 Commuted Sum? £ 40,000 £ 40,000 £ 40,000 Contingencies £ 0 £ 69,000 £ 138,000 Total Costs £ 1,737,200 £ 1,806,200 £ 1,875,200 Less Sales Value £ 1,900,000 £ 1,900,000 £ 1,900,000 Total Profit/Loss £ 162,800 £ 93,800 £ 24,800 Profit/Loss/Unit £ 21,350 £ 11,700 £ 3,100
- Option 4 (8 Dwellings with NO Commuted Sum)
0% Contingency 5% Contingency 10% Contingency Building Expenses £ 1,379,200 £1,379,200 £1,379,200 Purchase Cost £ 318,000 £ 318,000 £ 318,000 Commuted Sum? £ 0 £ 0 £ 0 Contingencies £ 0 £ 69,000 £ 138,000 Total Costs £ 1,697,200 £ 1,766,200 £ 1,835,200 Less Sales Value £ 1,900,000 £ 1,900,000 £ 1,900,000 Total Profit/Loss £ 202,800 £ 133,800 £ 64,800 Profit/Loss/Unit £ 25,350 £ 16,700 £ 8,100 Margins 11.9% 7.6% 3.5%
NOTES:
- 1) Sales Values have been derived using the following comparable properties, and extrapolating based upon location, size, amenities, condition, age, parking, views, time on market and whether sold or not:
- a) 2C Princess Towers, The Promenade, Port Erin – sold at £289,000 – 2 double beds, ensuite & main bathroom, large living area, kitchen, sea views. No parking/garage.
- b) 3B Eagle Towers, The Promenade, Port Erin – sold at £425,000 – 2 large double beds, 2 ensuites, cloakroom, large living area, kitchen, utility area, garage, 1 parking space, store, sea views.
- c) 3 Castle Court, Castletown – asking £209,000 (under o er at that) – small Dandara 2 bed, 1 bath, open plan lounge/kitchen/dining, 1 parking space (56.7 sq m)
- d) 1 Erinville, The Promenade, Port Erin – sold at £215,000 – small 2 bed (really 1 ½ beds), 1 bath, open plan lounge/kitchen/dining, 1 parking space, sea views but from ground floor.
- e) 1 Royal Shore, The Promenade, Port Erin – asking price £315,000, small 2 bed, 2 bath, open plan lounge/kitchen/dining, outside balcony, 1 parking space – 2 years old – Dandara build, no views (66.9 sq m)
- 2) Sales Values have been evaluated further and verified in consultation with Crystals Residential Sales as the only major estate agents with o ices in Port Erin.
- 3) Contingency Fees are identified in green at 0%, 5% and 10% and have been incorporated into Total Costs. These include allowances for rising costs of labour and materials, unforeseen work as partial demolition and extensive reconstruction are undertaken (based upon hidden defects and abnormalities including asbestos), project delays, loan interest, marketing expenses and any unexpected equipment costs, overhead and/or professional fees. A range of 5% to10% is considered an industry standard.
- 4) Building Expenses (as attached for 6, 7 and 8 units) are from Fistard Project Services. FPS are local chartered building engineers and construction managers, and they were engaged to evaluate the viability of developing this property. As construction cost consultants and dilapidation and condition surveyors as well, their market knowledge and experience specialising in historic renovations and conversions are key. They have included all anticipated costs in relation to building design for building regulation approvals, together with other incidental costs such as VAT. In addition, they have covered all required elements in terms of construction and fit out together with exterior works and hardstandings. No allowances have been given for legal fees in relation to property conveyance nor the formation of a management company.
- 5) Commuted Sums (if any) have been assessed at £20,000 per unit or £40,000 in total. However, the Public Estates and Housing Division, who have been consulted, will need to further evaluate current market comparables and the size, amenities and the finishing details anticipated for each specific unit. No continency percentage has been built in for these commuted sums, although commuted sums would certainly not be required with either Option 1 (6 dwellings) or Option 2 (7 dwellings).
- 6) Profit Margins have been provided with all four Options and have been based upon three builder contingency variables of 0%, 5% and 10%. These margins are shown per project, per unit and as an overall percentage. Although the 10-10 rule is standard for many developers (with 10% for overhead and 10% for profit), this application is intended to focus on the substantial need for housing in the Isle of Man by working within an estimated overall margin of only 3.5% to 11.9% as highlighted in yellow. This will in turn result in additional savings and support for lower-income residents.
- 7) Opportunity Costs should be considered carefully by any investor. Many banks are now
- o ering over 5% interest rates and Santander even has a 7% annual equivalent rate
- o ering. In addition, many investors in individual stocks, venture capital, initial public
- o erings and cryptocurrency are seeing returns of 10% to 20%. Certainly, one must balance risk with reward. And the added risks for developing Erin House include its condition, fluctuations in the market value of property, the real costs of both time and
- overhead, inflation (a ecting both labour rates and pricing of equipment and materials), lower liquidity and access to funds, and future mortgage rates/availability for buyers.
- 8) Rental consideration. If units are leased and not sold upon completion, and a commuted sum of £40,000 is imposed on this development, then annual rents will increase by approximately £4,000 or £500 per unit. Or alternatively, the applicant would face an untenable margin reduction from 11.9% - 3.5% as proposed to 9.4% - 1.3% (as shown in Options 3 and 4). In addition, there would be a longer delay in recovering a potential investment of £1,737,200 - $1,875,200, as shown in Option 3.
- 9) The Viability and assessment of this project are based upon the best and most accurate information currently available. And although not all figures can be guaranteed, they are deemed to be as reasonable and as reliable as possible.
- 10)Summary: As highlighted in yellow, Option 4 is clearly the ONLY viable option, based upon prevailing building rates, current market conditions, consultations with experts, the amount of risk involved, and exceptionally tight margins. Options 1, 2 and 3 would all result in substantially lower margins or even losses, and with no allowances built in for overhead or conveyance/management company fees either. As such, this project cannot realistically be considered viable other than under Option 4. To proceed otherwise, would simply be too risky for any informed investor, builder or developer.
