Excel Users in Real Estate Development
Appraisals are run by a number of participants in the real estate industry including chartered surveyors, developers, lenders, finance consultants, and even architects. Every single one of these participants has their own way of analysing a scheme, the majority of which are on Excel.
The real estate industry's main driver is financial. You buy assets in order to create value and ultimately profit. So one of the most important factors behind any transaction is the financial analysis. There are many different types of development professionals using Excel to appraise development feasibility, and today we will highlight some of the scenarios most common with Aprao customers.
SME Property Developers
SME developers often operate from an Excel appraisal tool. Most of the time the models aren’t too complex and feed into a simple cash flow. Many we have seen are chopped-and-changed models from friends or from previous roles at other development outfits. Many users aren’t entirely sure about the formulas that sit behind the model, and occasionally - when a formula is inevitably overtyped or broken - they spend hours trying to remedy the issue.
SME developer Love Property was previously using an appraisal model in Excel. Adrian Love, Director of the company says “Broadly speaking, we save 80% on the time taken to run appraisals. That translates into a significant amount of value for the business. We were previously using Excel, and laboriously so. ”
Developers come from a range of professional backgrounds including surveyors, planners, accountants, lawyers, contractors and bankers. This is by no means a limited list. New players entering the global development market are from all walks of life, each with their own set of strong base skills, and understandably, financial modelling isn't necessarily one of them.
Mid Sized & Enterprise Property Developers
Mid and larger-sized developers have often had an Excel model developed by an in-house analyst, finance director, or external consultant. They can be quite comprehensive and come with warning labels telling users not to modify cells.
The turnover of employees often leads to issues with these models. Those that developed or administered the templates leave over time, with old colleagues not fully understanding the system, or with a lack of documentation explaining the development of the appraisal. Rebuilding models is an expensive task.
Excel can become a problematic solution for larger user bases as there are multiple contributors to the system. For instance; our client Kitewood Estates. With a large team, they previously had multiple people across the business feeding into their model. Andrew Palmer - Development Director - explained to us that over time, the cost of running appraisals adds up when you have a growing team - because of the increased complexity and changing of multiple hands.
Chartered Surveyors are regularly involved in development appraisals for a variety of reasons, including bank valuation purposes, monitoring and sales, or acquisition.
In both the UK and abroad, many qualified surveyors have adopted software solutions and models that they inherited from predecessors, and these are not always up-to-date or as mobile as they could be - leading to a lot of administrative work, back-and-forth, and double-handling of data - which of course leads to human error.
We've found that Chartered Surveyors have some of the best - if not the best - financial modelling available; but again, a reliance on Excel or legacy software can prove to be a sticking point.
Development & Land Consultants
This is a particularly interesting sector in the real estate market. Our sales director Nick was involved in this sector for five years, advising on investment and development transactions in London.
This slice of the market is huge, and ranges from Chartered Surveyors to new participants with no real estate experience armed with a site-finding tool. This means there is a wide range of competencies and skills, and a broad range of models being used. Some consultants have incredibly sophisticated Excel models, while others will not touch an appraisal.
Regardless of modus operandi, a core purpose of this role is to give good advice on value; creating value for development clients and justifying the cost of consultancy.
This issue has been a hot discussion topic ever since Nick joined the industry in 2014. A lot of agents will say “I just know the value of the land or site”. But he says he has also seen this attitude lead to multiple sites not selling due to overcooked valuations. In a sector that lies at the heart of the economy, where large sums of money are spent on land and development costs, it seems far-fetched that a large proportion of the consultancy market are not undertaking detailed appraisal efforts, but it happens - and has a significant effect on financial outcomes.
In addition to these list above, there are also architects, lenders, consultants, contractors and new entries to the real estate development market. It's true that development is often seen as an easy-to-enter market, which was historically difficult to enter without a significant amount of experience and funding. But today, there is now a mass of online information, reputable development training courses (not referring to "get rich quick" property gurus, of course!) allowing new entries to the development market.
There are proptech tools that are now making it very easy to find development opportunities and assess planning viability. And what of the financial viability? Access to funding has become easier with a number of challenger banks making senior debt for construction costs more accessible. We are even seeing new users from contracting backgrounds take up our software.
With the right tools at their disposal, there's a lot of opportunity now available in property - and it seems that the limitations of the Excel model may hold certain players back.