Development managing the risk a presentation by ROGER FORD MRICS

1. Development managing the risk a presentation by ROGER FORD MRICS London, 29th June 2004

2. Overview • Why Develop? • access to product • cheaper than buying existing stock • control of quality and quantity of product • multiple exit scenarios

3. Overview • What are the principal development costs? • land acquisition – land price, taxes, advisory costs • fees – planning, architect, legal, marketing, project management • construction • marketing / tenants’ incentives • finance costs

4. Overview • How are development costs financed? • equity - cash • equity - forward funding • debt

5. Overview • How are investment returns achieved? • sale of completed scheme • sale price – development costs = capital return • investment retention • rental income / development costs = income return • refinance of capital

6. Planning Unable to achieve the necessary planning consents • appoint specialist planning consultant • option to purchase agreement • conditional land acquisition • joint venture with land owner Construction Building contractor does not perform • appoint quality contractor • properly drafted fixed price contract • cost overrun guarantees • insurance Market Market rents or capital values fall between start of project and completion • pre sales to reliable purchasers • agreements for lease • residual value insurance Finance Interest rates increase • forward funding • moderate level of leverage • hedging instruments Project Lack of co-ordination between development team increases costs and extends PC horizon • specialist project managers • specialist investment managers • experienced and qualified professional team Documentation Obligations of various parties not properly documented • use only specialist construction and property lawyers RISK MANAGEMENT Principal Risks What Can Go Wrong? How can these risks be managed? Equity Finance Low risk Debt Finance High risk

7. The Key Development Stages

8. The Good Development Essentials • assemble experienced development team • minimise costs until risks can be controlled • underwrite exit position • employ only the best building contractor • diversify capital exposure against a number of projects and markets

9. …. and finally, please remember …. • development belongs to the value adding world of Islamic banking • the ABCIB specialist property team is here to help the Islamic Investor • with care and attention Islamic investors will once again outperform

10. Development managing the risk a presentation by ROGER FORD MRICS London, 29th June 2004