Gross development value (GDV) explained

What GDV means

Gross development value is the total open market value that a finished development is expected to realise on completion and sale. It is the aggregate of the completed or finished scheme value: the sum of every flat, house or commercial unit at its sale price, or the capitalised value of the income if the scheme is held and let. The word gross matters. GDV is the top-line figure before construction costs, professional fees, finance and developer profit are deducted, which is why it always looks larger than the money a developer keeps.

GDV is the headline number in a development appraisal. A chartered surveyor establishes it first, because every other figure in the appraisal flows from it: the residual land value, the gross development cost, the profit on cost and the profit on GDV. Get the GDV wrong and the whole appraisal moves. The valuation is expected to reflect market value as defined in the RICS Red Book, the Valuation Global Standards published by the Royal Institution of Chartered Surveyors, so the number rests on evidence rather than optimism.

How to calculate GDV

The gross development value formula is straightforward in principle. For a scheme sold unit by unit, GDV equals the number of units multiplied by the expected sale value of each, summed across the scheme. For a scheme held as an investment, GDV equals the stabilised net annual income capitalised at the appropriate yield. In both cases the inputs come from comparable evidence: recent sales of similar finished homes, or recent investment transactions for similar let assets.

1. Measure the scheme accurately, usually by gross internal area (GIA) per unit and in total.
2. Gather comparable evidence: recent sales or lettings of similar completed property nearby.
3. Apply a value per unit, or a value per square foot, to each part of the scheme.
4. Sum the unit values, or capitalise the let income at the market yield, to reach the gross figure.
5. Sense-check the total against the planning permission, the specification and the local market.

A worked gross development value example makes it concrete. Take ten flats expected to sell at 250,000 pounds each. The GDV is ten multiplied by 250,000, which is 2.5 million pounds. If the same block were held and let at a net income of 125,000 pounds a year and capitalised at a 5.0 percent yield, the GDV would be 125,000 divided by 0.05, which is also 2.5 million pounds. A gross development value calculator runs the same arithmetic, but the value of the output depends entirely on the quality of the comparables behind the inputs. These figures are illustrative only.

How GDV, net development value and gross development cost differ

Three terms sit close together in an appraisal and are easily confused. Gross development value is the finished value before deductions. Net development value (NDV) is the GDV after the costs of sale are removed, such as agents' and legal fees and, on some schemes, an allowance for sales incentives. Gross development cost (GDC) is the total of everything spent to deliver the scheme: land, construction, fees, contingency and finance. Profit is what remains when GDC and the costs of sale are taken from GDV.

The residual method uses these figures together. The residual valuation takes the GDV, subtracts the gross development cost and the required profit, and leaves the residual land value, the price a developer can pay for the site and still hit the target return. Because GDV sits at the top of that sum, a small change in the finished value moves the residual land value sharply. That sensitivity is why valuers are careful and why we treat an evidenced GDV as the foundation of any facility we structure.

How the finished value differs from a site's day-one value

Day-one value, also called the current or open market value, is what a site is worth as it stands today, before a brick is laid. Gross development value is what the same site is worth as a completed and sold scheme. The two are separated by the whole development process: planning permission, construction, time and risk. A site with consent but no build might have a modest day-one value and a far larger GDV, and the gap between them is the prize, and the risk, of development.

• Day-one value measures the asset now, in its current state, with no works carried out
• Completed or finished scheme value measures the asset once built and ready to sell or let
• Gross development value is that finished value expressed gross, before costs are deducted
• Net development value is the finished value after the costs of disposal are removed

Savills and other advisers separate these terms in their development land glossaries precisely because landowners and developers price land off the wrong one if they conflate them. A landowner who quotes GDV as the land price has ignored every cost in between. The discipline is to hold day-one value, GDV and NDV apart and let the appraisal connect them through the gross development cost.

How valuers assess the completed scheme value

On a completed development the assessment tightens, because the asset is no longer a drawing. A RICS Registered Valuer inspects the finished scheme, measures the gross internal area, and values it against comparable evidence of recent sales or lettings of similar completed property. The valuation is prepared to market value under the RICS Red Book, so the valuer relies on transacted comparables rather than asking prices, and adjusts for differences in size, specification, floor level and aspect.

For a scheme that will be sold in parts, the valuer may give both an aggregate value, the sum of the individual unit values, and a single-transaction or net realisable value that reflects what the scheme would fetch sold in one line to one buyer, which is usually lower. For a scheme held and let, the valuer capitalises the income at a yield drawn from comparable investment sales. A finished-scheme valuation carries more weight than a pre-build appraisal because the build risk has gone and the evidence is real, which is exactly why exit finance can be sized against it confidently.

Why a development exit bridge is sized on the finished development value

Development exit finance is the short-term facility that replaces an existing development loan at or near practical completion. The build risk has gone, so it is cheaper than the development finance it repays, and it gives the developer a calmer window, typically 12 to 18 months, to sell units or arrange a refinance. Crucially, it is sized against gross development value, not against cost, because the asset is now finished and its value is evidenced.

The sizing metric is loan to GDV, written as LTGDV. It expresses the facility as a percentage of the finished scheme value. On a finished-scheme bridge we can indicatively place leverage up to around 70 to 75 percent of GDV, with the exact figure depending on the asset, the sales rate and the strength of the comparable evidence. Interest is usually retained or rolled rather than serviced monthly, and the exit is unit sales or a refinance onto term or buy-to-let debt.

These figures are illustrative and not an offer of finance. The leverage a funder will actually support turns on the GDV the valuer signs off, which is why an evidenced gross development value is the anchor of the whole structure. We read the development appraisal the way a funder does, starting from the GDV and working down through the gross development cost to the profit and the residual land value, and we place the facility with the funder whose appetite fits the asset, the location and the sales profile.

DevExit is a finance arranger and introducer, not a lender, and we are not authorised by the Financial Conduct Authority. The development exit funding we arrange is unregulated commercial lending. Every figure we quote is indicative, illustrative and not an offer of finance, and the binding numbers come from the valuer's GDV and the funder's terms.