What Is Gross Development Value (GDV) And How Does It Work?

In unpredictable times, how do you decide what your homes will sell for when the development will be ready in, say, 12 to 18 months? You need to base your Gross Development Value (GDV) on something. The key is to calculate it from evidence of today’s values and transactions. Don’t add uplift to the prices, but don’t be too pessimistic either. You will need to show how you reached your figures in your appraisal.

Why is GDV important?

GDV matters for two reasons:

• It determines your projected profit
• It is a critical metric for funders

GDV minus land acquisition and associated costs minus build costs minus fees and transaction costs = PROFIT

How to calculate GDV

You cannot see into the future, so base GDV on research into what the units would sell for in the current market, not when the development is complete. You need to know:

• current prices
• the value of similar properties sold recently
• how your specification compares with recent sales, and whether any feature is likely to command a premium

Opinions from two or three estate agents give you strong comparable evidence to justify your figure.

Here is an example for a proposed block of 9 apartments in London, using valuations from three agents:

• Agent 1: a price per unit slightly below the average
• Agent 2: the highest price per unit
• Agent 3: the lowest price per unit
• Average: the three valuations averaged, multiplied by 9 units

The developer can use the average GDV when speaking to lenders.

If you plan to rent the homes, base the calculation on achievable rental income instead.

Whether you aim for a capital or rental return, the figure needs to be as close as possible to the development’s open market worth.

GDV as a key performance metric

GDV is the foundation on which you build your financial package. Like the real foundations of a building, everything else rises or falls on this assumption.

Look at the profile of your likely buyer. Does the scheme have something that adds value for them?

• With changes in how people work, a well-designed space for working from home may add value.
• With the focus on net zero, energy efficiency and features such as electric vehicle charging points matter more to many buyers.

Target your buyer profile and build to meet their expectations.

How funders view GDV

A funder will want to see:

• your development appraisal
• your development experience
• how successfully you have managed past developments
• your exit strategy

You have the best chance of funding if your assumptions are accurate and not inflated. Lenders carry out due diligence and use their own valuers to check your figures, and they will assess your experience too, so don’t exaggerate it.

An exit strategy reduces risk and protects profit. Show GDV at the best result, the most likely result and a trimmed result. Each lender has a different appetite for risk, and evidence of achieving GDV on previous projects supports your application.

The funder of your last project may not be the best for your next one. Finance brokers have wide contacts and knowledge of current deals, and can often source better terms than you can alone. A flexible, supportive funding partner makes for a successful project.