Ground-up development risk review

What would 20,000 versions of your development reveal?

A normal development appraisal gives you one central case. Our development risk model allows planning, construction cost, programme, funding and exit assumptions to move together and shows where the scheme may be most sensitive.

Run a Development Risk Review See what the model tests

For SME ground-up developers, architects and professional teams.

Ground-up development risk review for an SME property development
Example analytical output

Development Risk Review

20,000 simulated project paths
Planning exposureReview
Programme sensitivityReview
Funding headroomReview
Exit resilienceTested
Beyond the central appraisal

A development rarely moves one assumption at a time.

The conventional appraisal remains essential. It establishes land cost, build cost, GDV, programme, finance and expected profit.

The difficulty is that the scheme itself may not behave in the orderly way the central appraisal assumes. A planning issue can affect time and cost. A construction problem can do the same. Additional months affect interest and facility maturity. Market conditions can affect both realised value and the strength of a refinance exit.

The Ground-Up Development Risk Review is designed to see what happens when those risks are allowed to interact.

What might it flag?

Where does the scheme deserve another look?

The value is not in producing another appraisal. It is in identifying which assumptions have the greatest potential to affect the scheme.

01

Planning

Where permission is not yet secured, how much of the downside is being driven by consent, conditions or planning delay?

02

Build & programme

What happens when a construction issue affects cost and time together rather than being treated as two unrelated sensitivities?

03

Funding

How much headroom remains if costs move, and how exposed is the development to running beyond the proposed facility term?

04

Exit

How dependent is sale or refinance on the central assumptions remaining broadly intact through to completion?

Every scheme carries some risk. What matters is whether a plausible change in an assumption is large enough to actually move the outcome.
Under the surface

This is not a standard downside sensitivity.

The deeper model is built in R and produces a distribution of possible project outcomes rather than relying on one base case and a small number of manually selected stresses.

20,000
simulated versions of the same development
Monte Carlo simulationGenerates a distribution of possible outcomes rather than one deterministic result.
Jump-diffusion construction costCombines ordinary cost movement with separate, less frequent shock events.
Mean-reverting sale-value processModels changing sale value rather than applying one fixed percentage haircut.
Correlated risk variablesAllows relevant risks to move together rather than assuming every event occurs independently.
Discrete planning outcome treeTests different planning routes where planning risk remains relevant to the scheme.
Linked cost and programme riskConstruction shocks can affect both cost and programme duration.
VaR and CVaR downside analysisLooks beyond average profitability into the shape and severity of adverse outcomes.
Facility-term testingCompares simulated project duration with the contractual funding period.
Refinance analysisIncome and yield risk are considered separately when examining refinance capacity.
Longstaff-Schwartz stage gateTests the economics of continuing at an intermediate point rather than assuming every path must continue.
How a simulated development can move through the model The diagram is illustrative of the path structure. Actual proportions depend on the assumptions entered and the results of each model run.
Illustrative development simulation paths An illustrative view of possible simulated paths through planning, construction, funding and exit. Some paths can end after planning or at an intermediate stage gate, while paths reaching exit may conclude through refinance or sale. Actual proportions depend on the assumptions and results of each model run.
Each line represents an illustrative simulated path through the model. Gold paths reach an exit; grey paths show possible earlier termination. The actual mix varies from scheme to scheme.
You do not need to understand the mathematics behind all of this. The important part is whether the analysis identifies something about the development that deserves further attention.
Early enough to act

A warning is more useful before the project is fixed.

If the analysis highlights a particular sensitivity early enough, the response may be practical rather than financial.

Architect

Could the scheme itself change?

  • Simplify part of the design
  • Revisit build complexity
  • Revise the programme
  • Investigate a planning issue further
Developer

Does the commercial structure need more resilience?

  • Increase contingency
  • Make additional equity available
  • Reconsider the proposed exit
  • Review whether the margin is sufficient
Finance

Does the facility fit the project?

  • Allow more funding headroom
  • Use a longer facility term
  • Review the funding structure
  • Strengthen the proposed exit route
The model does not decide what should change. It identifies where another look may be worthwhile.
EAS FINANCE

Development Risk Review

Ground-up development analysis
Areas for attention
Planning exposureReview
Programme durationReview
Funding headroomReview
Exit resilienceTested
Simulated outcome range
Methodology
Simulated project paths20,000
What you receive

Your Ground-Up Development Risk Review

The deeper model produces a formal Development Risk Review designed to be discussed with the developer, architect and wider professional team.

It translates the modelling into the areas that may warrant further investigation rather than expecting the reader to work through mathematical notation.

Headline risk metrics
Profit and downside distribution
Planning outcomes where relevant
Cost and programme sensitivity
Funding headroom
Facility-term exposure
Sale and refinance analysis
Areas for further attention
Discuss your development
Professional judgement

Better assumptions produce a more useful review.

The Ground-Up Development Risk Review does not replace the professional team. Their judgement helps determine the assumptions that are tested.

ArchitectProgramme, design complexity, buildability and planning issues.
QSCost plan, contingency and areas of unusual construction risk.
PlanningConsent, conditions, likely delays and appeal assumptions.
ValuerGDV, sales evidence, rents, investment value and yield.
DeveloperEquity, contingency, commercial priorities and intended exit.
How it works

Three stages, not another long process.

01

Build the assumptions

We start with the development appraisal, planning position, programme, proposed finance and intended exit.

02

Run the scheme

The model runs thousands of possible versions of the development, allowing the principal risks to interact.

03

Review the warnings

We identify where the scheme appears most sensitive and whether another look may be worthwhile.

What this is, and is not

A warning tool, not a forecast.

The model does not claim to predict whether a development will succeed. Its outputs depend on the assumptions entered, and those assumptions can be challenged and changed.

Its purpose is to identify sensitivities, concentrations of risk and possible pressure points which may deserve further investigation. It is intended to sit alongside proper professional diligence, not replace it.

Development Risk Review

What would 20,000 versions of your development tell you?

You already know the central appraisal. The more interesting question may be what happens when planning, cost, programme, funding and exit are allowed to move around it.

Put my scheme through the model Development finance

For SME ground-up and major redevelopment schemes.