2 Appraising for projects involving interests in land and buildings is complicated by the longevity of the freehold and leasehold interests and the durability of the assets. This section discusses these issues.
3 Many appraisals involve considering the optimisation of government interests in land and buildings. The appraisals will involve interests in leasehold and freehold properties, PFI/ PPP arrangements where property forms a part, and direct investment in construction.1
4 Securing value for money from existing investments, as well as new public infrastructure requires careful consideration. With existing assets, consideration needs to be given as to whether these can be surrendered, merged or modified to release value. With newly built assets, consideration has to be given to design, whole life costs, fitness for purpose, operational efficiency, and end of life costs as well as the initial impact of the capital payment.
5 If a proposal involves the acquisition, management or disposal of legal rights in land and buildings, the value of those property rights needs to be taken into account, whether these interests are freehold, leasehold, a licence, or subsumed within a PPP/ PFI contract. With new construction, the initial cost, lifetime costs and residual value will need to be considered.
6 Property interests are costed in terms of capital value, or rental value. Some leasehold interests, where the rental is different from the market value, may also have a capital value. Appraisals normally use capital values when appraising freehold property, properties with development value, and longer leasehold interests. As for other appraisals, this is done by bringing the cashflows to a net present value or net present cost.
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1 New orders obtained by contractors from the public sector totaled £6,176 million in 2000 (Construction Statistics Annual 2000 DTI, Table 1.1, pg. 16 and Table 1.4, page 20).