Land Planning Tied to Multiple Local Economic Factors

Local planning authorities (LPAs) deal with more than just housing zone changes. New homes are one component of environmental, economic and life-quality considerations.
It’s a classic chicken-and-egg question. What comes first, a resident population of workers for companies looking to establish workplaces in a particular locale – or is it the other way around, when employers are the draw to workers who move to be near them?

It happens in both ways, of course. But central to both perspectives is the intrinsic relationship between populations and workplaces. Not only do employers need people with certain skill sets, but they also require a large-enough population from which to draw appropriate workers. But over time, people will relocate to areas where the jobs are most plentiful.

Government policy recognises this. The Housing Grants, Construction and Regeneration Act 1996 addressed the matter of regeneration and development as a means of economic stimulus in select regions. Among the legislation’s priorities are to provide or improve upon housing as well as social and recreational facilities “for the purpose of encouraging people to live or work in the area,” as described in the act.

Many other factors affect where both workplaces and homes are built, of course. And as the UK struggles to revive its economy while simultaneously addressing a housing shortage, all such factors form a constellation. These factors run the gamut from the general state of the economy (local and global), currency strength, government interventions and interest rates.

Note that housing – the construction phase of new homes in particular – is often discussed as a short-term economic stimulus. We tend to discuss the economic value of homes purely in the activity around construction and furnishing a home. Less is said about the broader economic benefits, such as providing residences for workers who are essential to local employers as well as their role as consumers of products and services in the area.

Local planning authorities (LPAs), newly empowered with the Localism Act, are at the core of land use designation decisions. Much is said about the environmental sustainability goals of LPAs, which are, of course, of great importance. Some expect that a focus on the preservation of greenbelt and agricultural lands might then be the ultimate priority, but in fact the National Planning Policy Framework as set forth in 2005 allows that local economics are part of sustainability as well. Preceding this, the Brundtland Commission said back in 1987, “sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” Planninghelp.org.uk, which champions planning for rural areas, translates this into at least three directives:

• The economics of planning – Ensure that “sufficient land of the right type, and in the right places, is available to allow businesses to set up and grow, and to be supported by infrastructure such as roads and railways.”

• The social role of planning – Housing, leisure, recreation, retail and schools make for strong, vibrant and healthy communities.

• The environment’s role – Protection and enhancement of landscapes and wildlife, as well as historic and archaeological structures, are essential to clean water, energy and mineral access, as well as providing cultural and tourism assets.?

So while new home construction is an important short-term stimulus to local economies, it really is part of a matrix of considerations and, well planned, part of the broad sustainability of a region as well.

As the UK struggles with a shortage of housing, each of these considerations should help guide a renewed building phase that should materialise in the coming months and years. Already, investors from the UK, the United States and elsewhere are financing projects that will add to the country’s housing inventory.

With such an obvious degree of pent-up demand, strategic land investors and homebuilders are identifying good opportunities. Individual investors investigating alternative investments must, of course, examine the risk profile of development in light of all these factors, as well as take counsel from an independent financial advisor on their overall portfolio allocation.

Advisory: None of the information contained on these pages constitutes personal recommendations or advice. If you are unsure about the meaning of any information provided on this website, then please consult your financial or other professional advisor.

Is New Housing Construction Encouraged in the National Planning Policy Framework?

It’s a myth that sustainability goals of the NPPF will get in the way of development. Quite the contrary – newer housing and development only needs to be smarter.

Much has been written in recent years about the restrictions on growth created by the UK’s land-use regulations, such as those that limit development on greenbelt lands. While incorrectly blamed as the cause of the housing shortage that is acute and building – the issues are multifactorial and complex – the complexity of those regulations has been discouraging to developers and would-be land investors.

That said, several bright spots have emerged in just the past two years. One was the passage of the Localism Act, which essentially streamlines regulations as it cedes authority to local planning authorities (away from regional authorities, which were widely blamed for stymying economic growth). Part and parcel with the Localism Act is the National Planning Policy Framework (NPPF), which sets out government planning policies for England. The NPPF works under the auspices of the Department for Communities and Local Government, which issued an extensive overview of its policies in March 2012.

To what extent does the NPPF encourage the construction of new homes? In general, the localism theme allows for a variety of approaches – much broader than was previously the case. Without question, the environmental sustainability ethos engendered by the NPPF strives to encourage reuse of structures, such as the conversion of abandoned industrial, commercial and educational structures to housing, where feasible. But following are several points from the Framework where new building on raw land might on the whole achieve a positive outcome within sustainability objectives:

• Growth is a goal. “The Government is committed to ensuring that the planning system does everything it can to support sustainable economic growth. Planning should operate to encourage and not act as an impediment to sustainable growth. Therefore significant weight should be placed on the need to support economic growth through the planning system.”

• Build it for modern, green transport. “Encouragement should be given to solutions which support reductions in greenhouse gas emissions and reduce congestion. In preparing Local Plans, local planning authorities should therefore support a pattern of development, which, where reasonable to do so, facilitates the use of sustainable modes of transport.”

• Build holistically. “Planning policies should aim for a balance of land uses within their area so that people can be encouraged to minimise journey lengths for employment, shopping, leisure, education and other activities.”

• Working, productive relationships between developers and planning authorities. “Local planning authorities have a key role to play in encouraging other parties to take maximum advantage of the pre-application stage. They cannot require that a developer engages with them before submitting a planning application, but they should encourage take-up of any pre-application services they do offer. They should also, where they think this would be beneficial, encourage any applicants who are not already required to do so by law to engage with the local community before submitting their applications.”

• Flesh out problems and objections in early phases. “The participation of other consenting bodies in pre-application discussions should enable early consideration of all the fundamental issues relating to whether a particular development will be acceptable in principle, even where other consents relating to how a development is built or operated are needed at a later stage. Wherever possible, parallel processing of other consents should be encouraged to help speed up the process and resolve any issues as early as possible.”

In other words, planning has made some significant steps forward in ways that are friendly to development. If this attracts more investors to land and real estate, all the better. A growing UK population needs homes to make ownership and renting more affordable, so a cooperative working environment with clearly articulated goals is certainly a good foundation on which to build it.

Would-be investors in land need to consider all the variables: market needs, available sites and the objectives of local planning authorities. Before embarking on a land investment, the investor needs to consider whether to “go it alone” or participate in a joint venture partnership with professional land development specialists among its advisors. An independent financial advisor can help that investor identify also the degree to which land should occupy one’s full portfolio.

Advisory: None of the information contained on these pages constitutes personal recommendations or advice. If you are unsure about the meaning of any information provided on this website, then please consult your financial or other professional advisor.

How Do Housing and Infrastructure Development Compare to Population Growth in the UK?

With the population of the UK expected to hit 66.8 million by 2030, there are many ideas on how that should be managed. The good news is solutions are being discussed.

The growth of the population in the United Kingdom runs counter to trends in many developed Western countries, where population is either flat or even in decline. For the most part, it is viewed as a positive, a revitalizing factor that energizes the economy and the culture. But it would be disingenuous to say that it does not come without challenges – and there are differing opinions on how it can be managed.

Aside from the housing shortage in the UK – attributable to a great degree to population growth, but matters of economics and lending standards from skittish financial institutions factor in as well – there is also a great deal of concern about the strain that ever-increasing numbers of people place upon the country’s infrastructure. From transport to resource demands to schools, more people require more of everything. How can the country manage if things continue on the same course?

The Building and Social Housing Foundation (BSHF), an independent research organisation that promotes sustainable development, has long held that increasing the private to-let and social housing sectors is essential, along with the supporting infrastructure necessary to support that. Without this, deep social inequity develops that negatively impacts just about everything else.

Another organisation, the UK-Green Building Council (UKGBC), devised the Sustainable Community Infrastructure, which seeks to deploy “integrated, cost effective, sustainable infrastructure such as community-scale power, cooling and health, water harvesting, waste disposal and telecommunications.” It places emphasis on urban planning and smart building, architecture that strives for net-zero energy use (power generation by the building itself through renewable sources, along with buildings that simply require less energy in the first place).

The UKGBC sponsors the country’s LEED certification program, but green building hardly stops there. The “Passivhaus” concept, pioneered in Germany, has taken root in the UK with 24 structures built thus far that achieve a very high degree of energy use efficiency. While perhaps too expensive to be built on a mass basis, these homes introduce ideas on sustainability that educate traditional homebuilders and which help develop a building materials supply chain with innovative products that can benefit all.

Forum for the Future, a London-based sustainable development non-government organisation, tackles the question on many fronts. It challenges the notion held by many that containing population growth is sensible or desirable. In its report “Growing Pains: Population and Sustainability in the UK,” the organisation argues that growth is inevitable and that all major public infrastructure bodies need to plan accordingly, preferably in cohesion and in consideration of many possibilities (i.e., with flexibility). A central point made is to “use what he have more efficiently,” meaning seek out improved technologies, renewable energy, improved water efficiency, a coherent and efficient transport system and innovative approaches to reducing flood risk. Where populations are located will matter, including how regional planning processes might shift where people live today to less populated areas (the report cites a skilled worker shortage in Scotland, for example).

The existing planning mechanisms in the UK have in recent years shifted authority to local councils, which can be an asset. There still are national directives, national schemes for increased homebuilding and national trend lines. But when an investment group, for example, asks to have a parcel of land rezoned to accommodate new housing, the local council has the opportunity to examine the proposal relative to very local needs. This is designed to speed up the process of land use changes and development overall. What is particularly important about this process is that market-led forces generally are more likely and more able to deliver what is most needed.

Investors in sustainable construction more typically see returns on investment over longer periods of time – say, seven years instead of three, because renewable energy features such as photovoltaic cells or tighter building envelopes carry front-loaded costs. That may not be workable in many development scenarios, however the imposition of carbon taxes, beyond the very low petroleum tax and climate change levy (CCL), would change the homebuilder ROI to something more immediate.

Individuals who consider joint venture land investment schemes should ask land investment advisors about matters of sustainability, as it might affect the viability of a project. But before getting to that point, an independent financial advisor should be consulted to determine if and how development risks and rewards factor into their personal financial portfolio.

Advisory: None of the information contained on these pages constitutes personal recommendations or advice. If you are unsure about the meaning of any information provided on this website, then please consult your financial or other professional advisor.

Cash vs. Debt Financing: Which Has the Upper Hand in Buying Raw Land?

Land investors are flocking to the UK because of high demand for housing. But investors with cash have significant advantages over those who work with debt financing.

The incontrovertibly rising demand for housing in the U.K. offers many opportunities to real estate investors. Homebuilders in particular, including all the subcontractors and ancillary services involved in building and real estate transactions, have a tremendous opportunity before them. It’s true that lending schemes, local planning and the extensions rule (largely disfavoured for causing strife between neighbours) may not be the magic bullets they were promised to be. But on the whole as populations increase so too must the dwellings to accommodate them.

This business opportunity arises from a confluence of demographics and economics. Already population growth was a solid 7 per cent in the past dozen years, as measured by Census 2011. Projections of population growth from 2008 to 2033 suggest that there will be 5.8 million more people in the UK as an end result, a 27 per cent increase in just a quarter century. But housing starts are at about half of what they should be to accommodate this growth, as they have been since the financial crisis began in 2008. Stringent lending in combination with working families unable to accumulate sufficient deposits have led to what is now called Generation Rent. But even as they rent, their growing families itch for more space – preferably what they themselves could own, but if not, larger rental homes.

Investors from North America, the Middle East, China and elsewhere are drawn to the opportunity British investors see in this. Many are buying single homes and flats, operating as landlords as they look for capital growth if not income from their investments.

On another level, investors are joining in syndications or joint ventures to develop raw land into new neighbourhoods. This amortizes risk among investors, but more importantly draws in professional site development specialists who understand how to do acquisitions, site planning, use designation changes, infrastructure development and ultimately sell the property to builders. From there, homebuilders who know the market will construct homes that are priced for the most likely buyers.

Some investment groups work with borrowed capital while others self-finance. A strong advantage in working free of debt is in the acquisition phase. If there is competitive bidding for land, the buyer who can offer cash has better leverage and is more likely to win the bid. There are other problems with debt financing, which include the following:

• Negative leverage, such as when the project experiences a lower rate of earning profits than the mortgage interest rate (as well as out-and-out losses).
• Greater risk in recourse lending, when the loan puts the borrower at personal risk, as might be the case when an individual is involved in a land investment.
• Missed payments have consequences, particularly if the lender determines to foreclose on its collateral.

Of course, there are many other factors that can determine whether land investing is successful or not. Professional land investment specialists who understand how to work with local planning authorities are essential, as is having the capital to see through site preparation (development of infrastructure included).

Individuals who are considering land investments should do so under the guidance of professional financial advisors. Independent analysis of any investment relative to one’s full portfolio is always a good practice.

Advisory: None of the information contained on these pages constitutes personal recommendations or advice. If you are unsure about the meaning of any information provided on this website, then please consult your financial or other professional advisor.

Are Housing Prices Inflated by “Middle Men” Land Investors?

Residential developers formerly bought land, built homes and then sold them. But now many hand only zoning and infrastructure, handing off building to builders.

With so much attention on Britain’s critical shortage of housing, much thought and discussion is given to the processes and regulations around home building and real estate development. Among the players who are so affected by the debate and who ultimately build homes are developers.

That said, “developers” are quite often two distinct players, one the one hand there are those involved in land investment and, on the other, there are those who build the homes. The former identify sites, obtain zoning designations necessary to align them with market needs, and then sell the property to builders. One question that arises is this: by having two stages and players in development, does it add to the overall cost of housing?

How this two-step process affects pricing is difficult to ascertain on a broad basis. One argument is that it theoretically could, while another posits that land investors and homebuilders share a natural division of risk and responsibility.

Land investors buy raw, undeveloped properties or brownfields with uncertainties around land use designation changes (zoning). They also need to project forward two or more years before the market value of the property reveals itself. The investor or investment group spends money on infrastructure: they build roads, sewers, water utility lines and sometimes electrical and broadband cable installations. The homebuilder, in contrast, will often construct houses on the speculation that a buyer will be willing to pay the price that fits their business model. These are very different equations that require very different sets of skills.

Some of the factors called for in the National Planning Policy Framework (NPPF), released in 2012 by the Department for Communities and Local Government, place certain responsibilities on those investors whose business is modeled around the creation of new housing. Those responsibilities largely fall on the investor side of development:

• Be sensitive and innovative around greenbelt land, where development may nonetheless be necessary. The developer should fashion land use to ultimately reduce resource use, enhance natural habitat and increase production of energy from renewable sources.
• Provide plans in advance that a development will be financially viable. No town wants a project to be approved and then derailed by cost overruns that are unmanageable or where construction standards are then compromised as a cost-savings method.
• Engage voluntarily with local planning authorities in the pre-application stage and sometimes with the local community. This would include developers availing themselves to any pre-application services that might be available.

So without question, the homebuilder needs to construct good homes for the markets to which they want to sell. But the land investor deals with an important part of the whole process that most homebuilders do not want to manage.

Individuals who are looking for alternative investments and who consider becoming part of the investor portion of the process generally work with groups of financiers who hire specialists with a good understanding of land and land economics. Those investors are urged to contract with an independent financial advisor to set their level of involvement in relation to their portfolio risk standards.

Advisory: None of the information contained on these pages constitutes personal recommendations or advice. If you are unsure about the meaning of any information provided on this website, then please consult your financial or other professional advisor.

A Diversified Investment Portfolio Might Include Raw Land

In a world of complicated and often obfuscated investments, raw land is relatively simple and answers a strong market need: we need more houses in the UK.

Achieving the proper balance in an investment portfolio is perhaps the second most important objective to the investor – the first being maximized returns in all components of that portfolio, quarter upon quarter, year after year.

Investment advisors who deal in traditional market-traded securities will speak of an ideal 40-60 mix of stocks and bonds, respectively, with subdivisions for higher-risk/higher-returns and lower-risk/lower-returns asset allocations. But since disappointment and volatility have characterized the markets in the wake of the global financial crisis of 2008, millions of investors have ventured into alternative investments that include real estate (real estate investment trusts, REITs, plus the actual ownership of built property and raw land), rarities (art, antiques, coins, wine, vintage cars), hedge funds, and the like.

With this new awareness and preference for alternative investments has been a migration away from that 60-40 stocks-bonds mix. But what is the neat new formula to serve as one’s guide?

The answer is as varied as perhaps the number of different investors. Age and family situations will always be factors that can alter the mix, of course. But what many investment advisors are saying is that the investor might fare best when they understand the intrinsic nature of the investment, perhaps even get involved with it on some level. The vintage car buyer should not only think of those four wheels as an asset but rather as an irreplaceable prize of meaningful provenance, for example.

The same might be said for investors in land. The more one knows about the variables surrounding land, the more confidence he or she might have in the investment. Now to be clear, the individual who is new to land investing is strongly advised to work with professionals.  Strategic land professionals know how to take raw acreage through planning authority approvals to construction and to the ultimate (and profitable) sale of the property. And on its merits, land investing has much to offer:

1. Land is transparent. As compared to such exotic and opaque investments as derivatives, the value of land in its current condition is fairly easy to determine. A bit harder to project is value growth, the dynamics of which vary from location to location. But even with that, there are solid models for projecting how those dynamics can affect future value.
2. Finite supply and pronounced demand. The shortage of housing in the UK is well reported and grows every day, as the population continues its increase while only half as much building is completed relative to the need. While the dearth of lower-income and social housing is often discussed, the affluent are also battling to find homes as well (check the pricing of London housing, which have more than recovered to pre-2007 levels).
3. Buy-to-let vs. buy-to-build? The investor class is finding at least two options in real estate. One is to purchase housing flat by flat or building by building, which involves active management of properties with all the risks inherent in human occupation; a variation on this of course are REITs, the returns on which since becoming part of the UK investment landscape have been disappointing. That said, rental properties are doing well as the housing crisis is characterized by the supply-demand equation and, consequently, rapidly rising rental rates. But land purchased for the purpose of building new housing and commercial structures can deliver high yields but with fewer of the hassles of rental property.
4. Growth. While it may be investment malpractice to predict exceptionally high returns on land investments (raw properties, including greenfield and brownfield tracts), there are many examples of that happening. And note the current scenario fits a historical pattern: some of the greatest wealth of individuals has been achieved by way of land ownership and investment.

Of course, the only advisable means by which one allocates their investments in anything is through the counsel of a personal financial advisor.

Advisory: None of the information contained on these pages constitutes personal recommendations or advice. If you are unsure about the meaning of any information provided on this website, then please consult your financial or other professional advisor.

So, It’s a Free-for-All in Land Planning?

Is it a free-for-all in land planning?

Well, not quite!

The Government is proposing some significant reforms to "provide a comprehensive plan to unleash one of the biggest home-programmes this country has seen in a generation," in the words of Prime Minister David Cameron.

The proposed reforms include the following:

• Large commercial and residential applications will be directed to a major infrastructure fast-track system;

• The government will invest in housing sites to create 5,000 homes for rent at market rates;

• The Planning Inspectorate has been instructed with immediate effect to divert resources to prioritise all major economic and housing-related appeals;

• Affordable homes will not be required where it can be shown that to build them what make a scheme unviable;

• There will be a measure to allow developers the chance to seek additional time to get their sites up and running before planning permission expires;

• Developers will be able to opt to have their planning application determined by the Planning Inspectorate instead of poor-performing councils.

Other measures include:

• New legislation for Government guarantees of up to £40 billion worth of major infrastructure projects and up to £10 billion of new homes. The Infrastructure (Financial Assistance) Bill will include guaranteeing the debt of housing associations and private sector developers.

• 16,500 first-time buyers helped with a £280 million extension of the successful "First Buy" scheme, which offers aspiring homeowners a much-needed deposit and a crucial first step on the housing ladder.

The Governments see an infrastructure and house-building programme as a key factor in delivering a prosperous economy; as in the 1930s, we are going to build our way out of the recession. Eric Pickles, Secretary of State for Communities and Local Government, said, “This Government wants to get the economy growing. To remove unnecessary red tape. To support locally led sustainable development.”

The above measures are to be applauded. The planning system will remain fundamentally intact; however, measures to reduce bureaucracy and promote an efficient, timely planning system, allowing good-quality development to proceed quickly, will provide the infrastructure, jobs and economic boost necessary for the UK economy to thrive.

~ Anthony Brindley, Lucent Group UK ~

Lucent Strategic Land Fund – Liquidity Position

In light of the difficulties recently experienced by several funds that have led to their suspension or closure I wanted to reiterate the robust controls that the Lucent Strategic Land Fund (LSLF) has in place to ensure its continued financial well-being, particularly with regard to fund liquidity.

Admittedly real asset funds do not have the same liquidity as a daily traded equity fund. This is something that investors should always bear in mind. Liquidity therefore has to be carefully managed. This is an area the Investment Advisors and the Fund have to plan for, both during the initial submission of the file to the regulator and on an on-going basis.

The LSLF fund is domiciled in Luxembourg and is regulated by that country’s financial services authority, the Commission de Surveillance du Secteur Financier (CSSF).

LSLF’s Directors take the management of the Fund’s liquidity very seriously indeed. LSLF has the capability to call on a 30% liquidity margin. This is a significantly higher margin than property funds typically have. A minimum of 10% of the Net Asset Value (NAV) of the fund is always maintained in cash.  In addition, the Fund can facilitate access of up to 20% of the NAV in order to meet, if needed, exaggerated redemptions.  It is able to do this because the LSLF does not use leveraging for asset acquisition.  For clarity, the Fund does not use bank debt to finance acquisitions.

An important competitive advantage the LSLF has over and above other types of property funds is the divisibility of land.  This, together with the fact the Fund’s land assets are not leveraged means that the LSLF can, if need be, sell off part of a site. Indeed larger projects such as the Lincolnshire Lakes project are capable of, and planned to be, multi exit deals with the phased delivery of the asset to national housebuilders and commercial participants. This provides the Fund with, in effect, a ‘rolling liquidity’.

Furthermore, the above phased sale capability, in conjunction with the lack of leverage, gives a competitive advantage over commercial property funds.  Whilst the LSLF can sell off part of a site, a property fund, that has leverage on a 30-story office block, may find it difficult to sell, say, 15 floors.

All of the above make the LSLF’s liquidity position a robust one.

Liquidity is recognised as an extremely important issue by the Directors of the LSLF and is managed in a manner that has been found to be satisfactory to the institutions with whom we deal.

~ Chris Westerman, Lucent Group UK

Lucent Group Attracting Global Investment

When it comes to investing in UK strategic land, it’s all about timing.

There is an acknowledged housing shortage in England and a population forecast to increase by 17.5% within 20 years. Existing housing stock needs to increase by 29% by 2031. This presents a huge opportunity in land development to which Lucent Group is uniquely well placed to respond.

Lucent is the only group in the UK able to undertake a rigorous land acquisition process backed by the proven "in-house" land skills that are necessary to bring land forward for development. This is done without bank finance given the Group's own international fund-raising capability via the Luxembourg-domiciled and -regulated Lucent Strategic Land Fund (LSLF).

An International Proposition

Given that land is obviously such a country-specific asset class, the UK has been a natural and very supportive market in terms of investor inflows. The positive and compelling fundamentals that are driving the market in UK strategic land have, however, also been recognised by international investors. Since its launch in September 2010, the LSLF, an open-ended SICAV–SIF domiciled in Luxembourg, has attracted investors from the Far East, Latin America and other countries in Europe as well as from the UK. This has not happened by chance. Lucent’s global distribution network has worked hard to bring the opportunity that the Fund presents to an international audience. Seminars have been held, and visits made, to all of the above regions in order to support the Fund's distribution. The response of these various markets has been positive without exception. In today’s global marketplace, wherever an investor is based, a sound investment proposition from anywhere in the world, is something that will be considered.

The Opportunity

Timing has of course been critical to the Fund's success. The launch of the Fund in 2010 was in response to the circumstances created by the financial crisis and its impact on the strategic land market and its participants. House builders have been forced to find ways of reducing their building costs because of constraints on their equity resources. Finding more capital-effective means of acquiring land ready for development has been critical to them, and Lucent has responded to that need. The Fund has been ideally placed to act as the leading platform in preparing and delivering land ready for construction to the national house builders. The LSLF undertakes the acquisition, design, master planning and promotion of strategic sites and then sells consented land onto the house builder market.

The Fund is undertaking an intensive acquisition and planning period in order to deliver "oven-ready" sites to the house building market as demand for development land peaks. There has been a lot of activity in the house-building sector over the past four years. House builders have undertaken rights issues to raise capital and replenish their land stocks so that they are able to deliver new housing at a time when demand is greatest. The impact of this is already apparent. Development land values are rising. The strategic land market is being driven by a very different set of fundamentals from those affecting the property market in the UK.

Market Background

Given the above, the launch of the Fund in 2010 was well timed at an industry sector level. The same is also true when considering the timing of the launch in macro-economic terms. At a macro level the market in UK strategic land is being driven by demographics, and when a market is driven by demographics, its progress is unstoppable. The BRIC (Brazil, Russia, India and China) economies are testament to this. Figures from the Office of National Statistics (ONS) show a significant increase in the UK population over the next 20 years. It is not the fact that England is currently the most densely populated country in Europe that is key – it is the fact that this density is set to increase markedly. There are currently 395 people per sq km.  By 2031 there will be 464 people per sq km., an increase in population from 61.3 million to 71.6 million. When this map is considered in conjunction with the chronic housing shortage that exists in the UK (reference to which you see regularly in the press), the growing demand for strategic land with residential planning consent becomes obvious.

According to the Department for Communities and Local Government (DCLG), in a report published in November 2010, the number of households in England is projected to grow to 27.5 million by 2033, an increase of 5.8 million (27%) over 2008. All regions throughout England are in need of major urban expansion. Little wonder, then, that there is such strong cross-party political support for the need to bring more land forward through the planning system.

Trends in Financial Services

As mentioned earlier, timing is critical. For the LSLF timing has been perfect. Not only have the micro- and macroeconomic fundamentals and the political and demographic backdrops been supportive, but so too have been the recent trends that have evolved within financial services. A recurring theme, reported by Independent Financial Advisors (IFAs) in all the markets from which Lucent’s global distribution receives business, has been the demand of clients to "show me something different." In the past, UK strategic land investment was an asset class dominated by large institutions and the super-rich. The LSLF has made this asset class available, for the first time, to individual investors. It is delivering a new option at a time when clients are demanding something different as a consequence of their dissatisfaction and disappointment over the past few years with the major asset classes. The Fund has helped IFAs to meet this client demand. Predictably that enthusiasm has gained momentum with IFA’s and their clients, family offices, High Net Worth individuals and Discretionary Fund Managers as the returns available from strategic land have become apparent to them.

The LSLF has provided returns in excess of 50% since launch and has significantly outperformed the FTSE All Share Index over that period. IFAs have also been able to use the Fund as a means to address clients' increasing concerns over future inflation. History has shown that investment in a "real" asset such as land is a very effective, timely hedge against inflation. Lucent Group is the foremost land site assembly specialist in the UK. The LSLF has been launched by a group with direct land experience – not by a fund management company with no such experience. That much at least is not just about timing.

~ Chris Westerman, Lucent Group UK

Land Supply in the UK

Much has been made of the various government initiatives to both kick start the UK’s economy and increase demand for housing.  Several programmes were introduced in the Budget in April 2013:  the Help To Buy Mortgage Guarantee scheme, the Help To Buy Equity Loans scheme and the Build To Let scheme.

According to Kieran McLaughlin, a Director of Jones Lang LaSalle, together with a significant uplift in mortgage approvals – up 25% since January – and the re-emergence of the 95% mortgages from providers like Halifax, these initiatives have boosted market confidence.  Indeed the share prices of the main house building PLCs have increased by 50% on average since the beginning of the year.

There are concerns however that all this demand side activity will do little more than create another housing bubble unless there is also an increase in supply.

Planning Minister Nick Boles seems to understand this predicament and is looking at ways to improve the supply of land and housing to try to meet an ever-increasing shortfall.  Whilst Government figures suggest that England needs to build 232,000 new homes a year to keep pace with demand, in 2012 only 115,000 completions were recorded.

Mr Boles has previously suggested that it might be necessary to build on green belt land.  He has however also stated the importance of good design.  In an address to the National Housing Building Council in June 2013, he said that high quality, appropriate design would make it more likely that planning approval would be granted.  And in August he suggested that empty or boarded up shops on the nation’s high streets could be converted into housing.  With an estimated 14 per cent of high street shops now unoccupied or boarded up, and with the growth of both out of town malls and Internet shopping, this is an idea worthy of serious consideration.  It seems evident that if we are unable to improve the supply of housing, then house prices will continue to rise.

At Lucent we fully support Mr Boles’ views as to the importance of design.  This is why we have worked with urban planners, Allies and Morrison to develop the plans for our Lincolnshire Lakes Development.  And this is why we are also working with several other leading companies to ensure that the development is of the highest quality in terms of ecological mitigation, leisure and recreational facilities and infrastructure improvements.

We are also looking at urban sites such as in Southampton where our cutting edge design will transform the Royal Pier Waterfront site into a must-visit mixed-use destination.  In addition we are working with other councils across England to find innovative ways to bring land forward for develop to the benefit of all parties involved.  Wherever we work, we are committed to creating sustainable communities in which people wish to live.

And we will continue to play our part as strategic land specialists in supplying consented land to those who are hungry to build homes to meet the demand for housing in the UK as well as providing an outstanding capital growth opportunity for those wanting to get involved in alternative investments.

~ Anthony Brindley, Lucent Group UK ~

Global Banking and Finance Review

In October 2012, Lucent Group announced that the Lucent Strategic Land Fund had grown in value by just over 50% since it was launched in 2010.

The market case for strategic land development is overwhelming: There are many more people wanting homes than there are homes available. This acute housing shortage in the UK means there is a high demand for "oven-ready" sites that can be developed for residential or mixed use. Official projections show the need for an additional 232,000 homes to be built in England every year just to meet current household growth. And yet in 2009 there were just 118,000 housing completions; in 2010, 102,570 completions; and in 2011, 109,020 completions. These figures have helped to create strong cross-party political support for the need to boost the house-building sector and for changes to planning laws that are designed to make the development of land easier. The constraint on the delivery of "ready-to-build" land is the single biggest hurdle to increasing housing supply.

The delivery of strategic land is what we do. Lucent focuses on the most profitable part of the land development process: acquiring sites that have been identified to come forward for residential or mixed-use development within their respective local plan but that do not yet have detailed plans or permissions. Lucent then works with its own in-house team of specialists, augmented by a select group of professional consultants, to produce sustainable "development-ready" land sites before selling them to house builders or other development companies.

The Fund was launched at a nervous time for investors, but it has now grown to a critical size with acute interest from sophisticated and institutional investors across the world. Since the Fund opened in 2010, the shares have risen in value by 50.99%. So far this year, the Fund has grown by 11.01%. In the recent investment climate, this is a remarkable achievement.

The increase in value has resulted from Lucent delivering on its strategy. We have secured 605 acres of the Lincolnshire Lakes project, which can accommodate up to 4,000 homes and commercial development in the first phase. Lucent is working with the council to create a masterplan for what will be one of the largest garden city projects in the UK, a concept of a series of villages. The masterplan will soon be going out to public consultation. We expect to be announcing further acquisitions in the south of England shortly.

The Lucent Strategic Land Fund (LSLF) operates in a structure of rigorous governance and compliance. It is a dedicated fund of KMG SICAV–SIF based in Luxembourg and regulated by the Commission de Surveillance du Secteur Financier (CSSF). With a separate board of directors owing overall responsibility for approval of all investment and divestment recommendations, the LSLF has also appointed KMG Capital Markets Luxembourg S.A. to act as its global investment manager. Governance of the LSLF and the operations of two dedicated Lucent Group companies (Lucent Advisors Ltd and Lucent Global Distribution Ltd) is aided by a range of advisory firms, including BNP Paribas Real Estate, which provides the monthly valuation of the LSLF.

The Lucent Strategic Land Fund has been designed to provide well-informed investors with the opportunity to access this fundamental asset class. There is little doubt that land investment is – in a well-governed structure – one of the safest and smartest ways of investing money. The LSLF is the only open-ended investment vehicle available that focuses purely on strategic land delivery in the UK.

But it is about more than wealth creation. We also have a social responsibility to ensure the sites that we plan are sustainable and right for the people who will live and work in them. This goes to the heart of what we do and what we believe in. We help the Government and local authorities we work with deliver their ambitions for the future. I am proud to say that those who work with me have a fantastic record of delivering sustainable and desirable plans. 

I hope and believe that our legacy will be sustainable and responsibly developed sites combined with exceptional returns for investors.

~ Marco Pasquale, Lucent Group UK ~

Why Full-Scale Land Development is Not Solely Done by Homebuilders

The full range of developing raw land into residential construction is becoming too much a risk for companies that build homes. The task is now split, with good results.

Home builders in the UK have traditionally functioned as developers. This means they took on everything from buying land to developing streets and utility infrastructure to building the homes. If the homes are priced right for the market – and meet market expectations for what a home should be – they made a good profit.

But the housing crisis in the UK suggests that this formula is no longer working effectively as it once did. Despite a robust increase in the population (2011 Census found that, overall, the country grew by 7% in the previous decade) and a historically underbuilt environment, homebuilders were unable to undertake the traditional risks of building. While the population grew by about 4 million people between 2001 and 2011, only 1.4 million homes were built in the same time period. The average home has slightly more (by statistical averages) than two people, suggesting that this rising population is underserved. Consequently, the price of homes has risen even while lending standards have reduced the numbers of qualified buyers. About 270,000 new homes built per year would satisfy population growth, according to the (now defunct) National Housing and Planning Advice unit.

That said, growth and demand are not uniform across all regions of the country. London and the South East have high demand, while the Midlands and elsewhere (including Wales) have lower economic growth and therefore lesser demand and wherewithal for housing. And in surprising niches here and there, there is an absolute demand for new homes.

This is where the creativity has come into play. Instead of taking on the full sequence of development – buy, plan, build infrastructure, build homes, then sell – home builders increasingly rely on strategic land specialists and their investment partners to bear some of the risk, do part of the work and share the reward. The land specialists and investors therefore do the following:

1. Identify local housing needs – Land specialists study economic, business development and other data to learn where new housing is most critically needed.
2. Identify appropriate sites – Within an identified market, land investment groups search multiple locations to determine where the best opportunities lie for optimal return on investment.
3. Understand local planning authority preferences – Land is not acquired without knowing the local predisposition to make zoning changes that would allow residences to be built where another use, such as agriculture, is the status quo.
4. Negotiate a purchase – One or several landowners need to be approached with an offer. Needless to say, this needs to be done within clear financial parameters.
5. Work with local planning authorities to achieve use designation changes – Once the land is purchased, a strategic rezoning must be pursued. This is more possible under the new National Planning Policy Framework (NPPF), which grants local authorities more discretion than in the past. Local authorities are now encouraged to free up between 5% and 20% of land for housing.
6. Construct development site infrastructure – With that land-use change, the land investors will fund construction of streets and utilities that provide homebuilders with a ready-made place for residences.
7. Sell to homebuilders – This is where the homebuilders pick up the programme. They buy single or multiple lots, build the homes then sell them. Of course, their capital investment in structures is significant, but it’s less money carried over a shorter period of time than if the six previous steps had been their responsibility.

Individuals who are interested in the land investment phase – up to and including step 6 above – should do so in partnership with experienced land investment specialists. And at that, they should consult with a personal financial advisor to determine if such an investment fits their overall investment goals and objectives.

What is the Root of Home Shortages in the UK?

Speaking of ‘the UK housing shortage’ misses the point. Cities Outlook 2013 says thatlocalizing the problem might be the national solution.

It is conventional wisdom in the United Kingdom that there is a housing shortage. And while that in fact is quite true and is evident in the high cost of housing overall, it is wrong to think the shortage is emblematic of only the economic downturn since 2007. In fact, this shortage goes back at least 30 years and arguably is due to failures in government policy in combination with robust population growth.

Various economics and population studies suggest that approximately 232,000 houses or housing units need to be constructed per year, simply to keep up with population growth (about 7% over the past decade, according to Census 2011).  But since the mid-1980s, housing completions by the three main sectors – private enterprise, housing associations and local authorities – have exceeded that number only once. The shortfall has been cumulative and has rapidly gotten worse since the burst of the housing bubble that peaked in Q3 2007.

But the actual picture of housing shortages is mixed when examined city by city, according to a report titled Cities Outlook 2013, sponsored by The Centre for Cities and supported by the Local Government Association. According to their study, the problems in the housing sector vary considerably from city to city. London currently has the least affordable housing and highest demand found today, in 2013, greater than it was in 2007. This same situation of elevated prices and high demand is found in Cambridge and Bristol. In weaker economies (Hull, Hastings and Middlesbrough, for example) prices are lower, the existing housing stock is poor and jobs are lacking, illustrating how housing inventory is a vastly different picture and subject to, but not a driver of, local economic conditions (the quality of local jobs and connectivity to other markets are more influential to those economies).

This matters more than just how crowded and unaffordable housing has become. The Cities report also details how housing markets impact local economies in three key areas:

• Business and enterprise – A robust housing market, where buying and selling transactions occur, stimulates several industries: construction, estate agents and the mortgage industry, to name a few. When housing is expensive, it effectively puts a cost burden on business if companies need to pay more to attract essential workers to an under-built area.

• Labour markets – Workers are drawn to not just jobs but an area’s quality of life, therefore outsized housing prices tend to discourage labour mobility. And for those workers who move to expensive housing markets, consumption of other goods subsequently declines, negatively affecting the local economy.

• Infrastructure – Housing development is intrinsically related to transport infrastructure and consequently needs to be considered holistically: Build the roads and rails from public coffers as private investors and perhaps housing associations add to housing inventory.

According to Cities Outlook 2013, the crux of the problem is that housing policy and programmes are set on a national level. This then fails to address local challenges and opportunities (e.g., the Infrastructure point above). For example, some of the locales where housing is more plentiful (indeed, many properties are abandoned but could be rehabilitated) benefit little from new-construction incentives (which is how the “Help to Buy” scheme is largely focused).

Initiatives such as Get Britain Building, changes to the National Planning Policy Framework and the New Homes Bonus accomplish this inadequately, says the report. It acknowledges the Localism Act does this in part, but argues instead to jumpstart home building in 2013 by two means: focus government policy on development in the specific cities where housing demand is greatest, and incentivise retrofits and reconfigurations as well as new-build development. To this latter point, the government should look at cities where vacancy rates are highest then target funding and zoning powers to retrofit and build new, whichever makes the most sense (i.e., allow for local decision making).

Without question the role of the private developer is essential – centralised development that is too heavily focused on social housing does not lead to a balanced and thriving community. Increasingly, private development of housing involves groups of investors who work with professional strategic land buyers, who themselves develop raw land or brownfield properties where demand is greatest (and where public policy is amenable to such development).

Individuals who are unschooled in land development should consult with a qualified personal financial advisor to determine how and where their money can be wisely invested in housing development. As should be clear, it is a complex arena where special skills are extremely important.

Understanding Property Funds

A property fund allows investors to participate in real estate opportunities with the added benefit of diversification.

With greater awareness of the opportunities present in the current real estate market, many investors are looking carefully at property funds. The volatility of traditional investments, especially publicly traded stocks and bonds, drives interest and investment in various forms of real estate and property investment instruments.

A property fund allows the investor to diversify – and minimise risk – by buying multiple properties that are appropriately vetted (before acquisition) and managed (after acquisition) by skilled property fund managers. This differs from individual investors who are sole owners of single or multiple parcels of land. The lone investor may face headwinds from external factors, such as change-of-use resistance or an adverse change in local economics, whereas a property fund will strive to avoid such situations. While the nature of land will always be subject to externalities, the diversified nature of property funds leaves the investor with proportionately less exposure.

An alternative to a property fund is a REIT (real estate investment trust) fund; however, the two have key differences. A REIT is more liquid – an advantage to some investors and a disadvantage to others. But this also tends to subject the investor to market volatility, something avoided by a trust fund. REIT funds incur management fees that are generally greater than those found with property funds.

Understanding Joint Venture Investments

There are many advantages to joint venture investments, including how the partners can bring experts together with a pool of investors.

Joint venture investments are vitally important to many types of enterprises: For new or revitalising companies, in technological research, and to businesses that work across national borders (where the joint venture partners bring financing and local expertise together). Joint ventures in real estate are a special category because of the nature of land development.

To the individual investor, a joint venture investment in land provides several advantages. A lone investor would bear all the risks – and rewards – of real estate development. But this can be too large an exposure for many individual land investors. The advantage of a joint venture investment in land is that individual investors can participate in larger acquisitions with better knowledge, expert management and economies of scale.

The nature of land investing raises many questions. Is it ripe for development? Are there barriers to development, such as local zoning or economic uncertainty? What are the opportunities that are not readily apparent to investors who are geographically removed from a particular parcel? In a joint real estate venture, appropriate expertise and analytical tools can help to answer these questions.

In a recovering economy, land located in favourable regions, counties and countries offers promise for capital growth through development as well as from market forces. Joint venture investors have already begun to seize the opportunity.

The Role of Property Fund Managers

Good property fund management bolsters the strength of real estate investments.

The attraction of historically low land valuation is compelling investors to consider real property as an important complement or even lynchpin of their financial strategies. Because most people lack deep familiarity with real estate and land investing and how to discern a smart acquisition from a poor one, investors depend on property fund managers to guide them in their investment choices.

Managers of property funds will follow a strategy, such as a focus on warehouses, retail centres, hotels and resort properties or undeveloped land. Typically, fund managers expect most of the land it acquires to be sold to developers involved in house building.

These strategies adapt to evolving market conditions, of course. A good example of a fund management strategy is one that considers how residential homebuilders are decoupling their role of cost-effective housing delivery from that of land acquisition. That presents opportunities for property fund managers to prepare and deliver land that is ready for construction. The specialists who manage those funds are experts in the acquisition, design, master planning and promotion of sites.

In that same example, it is beholden on the property fund management firm to first identify – on behalf of investors – where the best opportunities lie in land acquisition. They are attentive to where population and economic conditions will drive housing or other needs for land development and to where local authorities are likely to allow rezoning or change-of-use plans to accommodate the kind of development that will ultimately be profitable to all stakeholders.

Property Fund Partners and their Role in Land Investment

The investor looking to take advantage of real estate opportunities is wise to find property fund partners to manage his or her risk.

The uncertainties and risks associated with all investments – publicly traded stocks and bonds as well as alternative investments such as hedge funds and real assets (real estate, for example) – require all investors to work with trusted and competent advisors. Nowhere is this more important than when investing in land. Variability between real estate choices compels the investor in most instances to work with property fund partners who know how to mitigate risk and maximise returns. These partners will work with its own in-house team of experts as well as strategic partners across the market.

The confident lone investor may be someone with an education and career experience in land and land development. But the vast majority of investors choose to work through a diversified portfolio fund, where the smart acquisition and management of multiple parcels of property limit their exposure. The fund or funds they select are only as strong as the expertise and skills of the land fund managers.

It is those skills that enable the property fund partners to succeed for their client-fund participants. They identify where the maximum asset returns can be found and what optimal external factors are present. Externalities include local development and planning schemes, trends within a local economy and competing properties in the district. Fund managers also assemble a portfolio of properties with a variety of characteristics that will take advantage of a variety of market conditions – again, to mitigate exposure.

Add to this the fact that investors have their own set of tax strategies that can be affected by land investing and it's clear that property fund partners play a vital role in creating a holistically profitable asset for the investor.

Joint Venture Land Opportunities in the UK

The joint venture land opportunity of today is to anticipate where post-recession growth will increase demand for housing and businesses.

Land investors – especially those interested in investing in strategic land – are currently focused on the UK, where a chronic shortage of housing means demand for land is high – and growing.

Global and local economic forces, in combination, are making joint venture land opportunity investing a particularly compelling scenario for investors.

Let us analyse how that works and its consequences. To the land investor, the depressed price of real estate caused by the worldwide economic downturn is a distinct factor – and opportunity. An economic recovery could well unleash demand for housing and commercial construction, which would consequently increase the price of land with relative speed. In some jurisdictions, the desire to attract residents and businesses creates a willingness to enact a change of use on key parcels of land.

Investors who are wary of the exposure from “going it alone” instead use joint ventures to purchase, manage and resell land. This enables the purchase of larger and perhaps more strategic tracts of property, often without borrowing money. A joint venture will also corral the talents of specialists in real estate acquisition, development and management who provide an important bridge between financiers and real property. That expertise can allow the partnership to focus on the most profitable part of the land development process: acquiring sites that have been identified to come forward for residential or mixed-use development but do not yet have detailed plans or permissions.

More investors see such JV arrangements as enabling them to achieve a balanced, diversified portfolio. Real estate has historically performed well and is in fact the source of wealth creation for a large proportion of individuals of high net worth. Current market conditions are thought to provide a rare opportunity for rapid valuation increase.

Can Investors in Property Funds Participate at Varying Levels?

Discover the different levels of participation in property fund investments.

The range across which investors can grow assets includes REITs, joint land investments and sole ownership of vast tracts. Each offers advantages and disadvantages.

Building wealth through buying, selling and holding land is a time-honoured tradition across the world and throughout history, in the U.K. as anywhere else. It is not fool proof, of course – everyone and anyone could get rich if it were – but at least the means by which one can invest in land are now more varied than ever before. It is possible to own shares in a real estate investment trust (REIT) for a few hundred pounds, just as the land barons of today own thousands of hectares in Britain and elsewhere.

REITs’ rules in the U.K. have been in effect since 2007, and are lauded for providing investors a means to access property value increases without having to buy the property itself.

However, REITs are traded publicly and tend to rise and fall with general market trends. The owner of REIT shares has no involvement in the actual properties, therefore value growth is entirely a function of the markets and the broader economy. Performance by REITs shares in the economic downturn since 2008 has been unkind to shareholders.

At the opposite end of the UK land investment spectrum, confident and experienced land developers look for raw, undeveloped land for asset growth. The savviest investor learns where market pressures for developed properties (e.g. housing) drive a need for zoning changes that will convert unused (sometimes agricultural) property to residential tracts. That investor will know how to buy at a price that will ultimately return a profit. The Duke of Westminster, one of the richest land investors in the UK, exemplifies this model.

In between REIT shareholders and His Grace are land development investors who work with property funds that hire professional land investment advisors. The price of entry into either type of fund ranges between £10,000 and £25,000 (US$15,000-$40,000) in most scenarios. Such an investment provides the investor greater opportunities than they might find in an REIT – for example, the prospectus will detail the specific features and risks associated with a particular land purchase. The investor will enter with some knowledge as to how long the investment will be held – typically between 18 months and five years – and what the benchmarks are for light development (infrastructure, less so buildings) before selling to housing or commercial structure developers.

Alternatives to land investing and property funds include stocks, bonds, commodities, hedge funds, precious metals (gold, silver), forestry products, energy (fossil fuels and renewables), and rarities such as art and antiques. For more information on choosing the right investments to match your individual asset growth needs, seek counsel from a qualified financial advisor.

What Are the Risks of Real Assets as an Investment?

All investments, including property funds and other real assets, carry risk.

Following years of poor performance by market-traded securities, investors are choosing real assets as an alternative. But all investments are subject to risk.

Battered by an economic downturn over several years, investors in the United Kingdom are, like their counterparts in the European Union and the United States, looking for investments that maximise asset growth. Traditional market-traded securities (stocks and bonds) in particular have underperformed, leading investors to look at alternative investments.

Alternative investments range from the opaque (short only funds, ultra short funds, absolute return funds, market neutral funds, hedge funds) to the transparent, such as real estate investment trusts (REITs), private equity and venture capital. A subset of alternative funds includes real assets, including land, developed real estate, rarities (art, antiques, stamps, fine wine, coins, antique cars), precious metals (gold, silver, platinum, palladium) commodities (energy sector fossil fuels, plus agricultural goods such as wheat and corn) and even renewable energy products (biofuel crops, solar panels and wind turbines).

This last category, real assets, holds great interest after the disappointments of exotic and complicated investments such as derivative assets. Art can be appreciated with the eyes, much like antiques. Fine wine can be held, traded or even consumed (a reckless investment act, but sometimes a celebratory gesture of something of even greater significance). Land can be traversed, formed, beautified and turned into human habitat. Precious metals are sometimes adornment, or held in bulk in safety vaults. We feel good when we invest in energy to power industry, perhaps even more so when it is from renewable and non-polluting sources. An antique car might be driven for very special occasions – carefully and responsibly.

But real assets such as these carry their own risks. While insurable, rarities such as art and antiques can be utterly eliminated by fire, natural disaster or theft. Commodities are subject to market forces that can, under some circumstances, cut value to a net loss.

Land investment and land development are also subject to external forces. But professional advisors control variables in strategic land investments with methods that include the following:

1.    Choose land that will likely appreciate – Experienced land investors (many investors join small-group funds with professional advisors) search for property that is ripe for development (usually for housing) to accommodate the U.K.’s growing population. Such properties are typically slated to become part of a town plan. The investors – who at a minimum invest £10,000 – do not blithely wait for the planning process to play out but actively ensure their land investment progresses on a timely basis.

2.    Infrastructure investment (where appropriate) – Some land investments benefit from the building of roads, the installation of utilities and water and sewage removal. This makes the property ready to build for construction firms.

3.    Expertly time the land sale – All strategic land development follows a pre-set timeline. This is important to the investor, as he or she can know when to expect a distribution on the eventual sale profit.

Still, even well managed property funds investments come with unknown variables. Would-be investors who want to learn more about strategic land should consult with an independent and qualified personal financial advisor.

Understanding Strategic Land Partnerships

The cumulative leverage that multiple investors achieve through strategic land partnerships enables them to make optimal acquisitions.

Strategic land partnerships are essential to most investors who wish to participate in land development but who lack the expertise or capital to do so individually.

What many land investment professionals recognise is that the present opportunity is ripe and rare. Land prices are depressed as a result of the recession, and yet many municipalities are interested in promoting development as the recovery progresses. A partnership of investors, working through a strategic land fund, can pool resources to make optimal acquisitions.

The parcels of land in a strategic acquisition will be situated in an area that is ready for growth. The partnership will process a change-of-use/rezoning designation, increasing the value of the property before it is sold to residential or commercial developers for construction. Real asset growth from such partnerships generally outperforms the alternative, real estate investments trusts (REITs), because these partnerships are less subject to volatile trading prices.

The nature of real estate, where every property is unique, defies typical valuation comparisons that investors try to analyze when, for example, choosing a company stock. This underscores the value of strategic land partnerships in that the managers who work for the partnership bring strong expertise to the enterprise. They know how to identify where opportunities are strongest, including where local conditions are favourable to development – and where they are not. They are able not only to identify the opportunities but also to analyse risk and to plan how to take the land to development-ready status.

Understanding Real Asset Funds

For investors looking to alternatives to the stock market, real asset funds are attractive for diversifying risk in less-volatile investments.

Real assets provide an excellent hedge against inflation and are particularly attractive in times of market volatility, when stocks and bonds are underperforming or erratic. This is because real assets – things such as land (real estate), natural resources (oil, gas and coal), precious metals (gold and silver), commodities (timber, wheat) and equipment – often perform counter to the market. Investors flock to real asset funds when other investments, including publicly traded stocks and bonds, are volatile or depressed.

A real asset fund allows the individual investor certain advantages. He or she can be diversified across one or several real asset categories. That investor is also joining similar investors to own more of one or several assets.

A good illustration of the advantages of real asset funds is land investment (ie, undeveloped real estate). Where an individual investor would want to limit his or her exposure on a single piece of property owned outright (or owned with the help of a loan), an asset fund made up of many investors spreads the risk, often without the need for external financing (ie, bank loans). With a larger pool of money, it becomes possible to purchase larger and more attractive parcels of land. The fund investors are also able to hire better advisors, counsellors and managers to maximise their investment. These professionals typically work within the same group, thereby guaranteeing more focused advice and greater commitment.

Currently, asset fund managers are very actively involved in real estate acquisitions, owing to the exceptionally low valuations on land coming out of the multiyear global recession. Because banks still follow stringent lending criteria, private investors, in the aggregate, in a real asset fund are better able to purchase properties with strong growth potential.

Real Asset Portfolio Investing

Investors who choose real asset portfolio investing appreciate diversification and reduced exposure.

The expertise that an investment advisor can offer means informed investment decisions and reduced risk as well as a range of ownership.

When an investor chooses to participate in a real asset portfolio, he or she is being strategic on at least two fronts. One is that real assets (commodities, precious metals, real estate, etc) are often used as hedges against inflation and market volatility that may be affecting financial instruments such as stocks and bonds. Second, by investing through a portfolio, the investor is avoiding exposure that might come from owning just one or two real assets.

Real estate is historically a smart place to achieve real asset growth – a large proportion of personal wealth has been historically achieved through both developed and undeveloped land. The “lone investor” alternative – owning just one piece of property – subjects that investor to the whims and happenstance of local jurisdictions and local economics. It does the owner of a large tract of land little good if the local jurisdiction is unfavourable to zoning changes or if a depressed regional business environment causes that land to drop in value.

This is where a well-managed real asset portfolio offers a strong advantage. The portfolio will have multiple properties in multiple locations. A portion will be readily realisable, returning value at paced durations. Any exposure to local challenges would be minimal, largely because fund managers are skilled at avoiding problematic assets in the first place. The level of expertise an experienced fund can bring to bear on a land acquisition also reduces the risk of poor investment decisions and low returns.

Understanding Alternative Investment Funds

Real estate land funds are a type of alternative investment that can provide solid and significant returns.

Trading in stocks and bonds is by far the most recognised means of investing. But in fact there are alternative investment funds that serve a key investment role for individuals of high net worth and for corporations and institutional investors.

Alternative investment funds cover a wide range of categories, from managed futures to hedge funds, private equity funds, exchange funds and real estate. Each of these offers opportunities – and risks – for the investor that are not found in traditional investments, stocks and bonds.

Real estate land funds are a type of alternative investment that can take many forms. These include everything from commercial property (industrial warehouses, retail centres, office buildings) to multifamily housing to undeveloped land. Each type of real estate-based investment fund carries its own set of tax implications and growth potential for the investor that can be advantageous. For this reason, these investments need to be evaluated one investor at a time.

To illustrate, a land investment fund can be focused on areas zoned for one purpose or another. The market factors that would favour one such an investment – for instance, land appropriate for new housing construction, at a time when demand for housing is expected to increase – can provide a good return in a few short years. But if that land is unlikely to get a change-of-use zoning from the local authority, the value proposition changes. These and other variables require investors (and investment advisors) to study such alternative investment funds carefully.

When it comes to investing in land, it is wise to focus on the most profitable part of the land development process: acquiring strategic land sites that have been identified to come forward for residential or mixed-use development but do not yet have detailed plans or permissions.  There exist strategic land investment advisors who produce sustainable "development-ready" land sites before selling on to house builders or other development companies.

Choosing Capital Growth Partners

People with deep knowledge about alternative investments (land, hedge funds and so on) are capital growth partners to investors.

The goal of almost all investment is capital growth. This is as true in the publicly traded stock and bond markets as it is in alternative investments (hedge funds, real estate investment trusts, foreign exchanged funds, private equity and the like).

But because most investors are themselves not intimately familiar with the businesses and real assets they invest in, they largely depend on investment advisors to find investments that are well managed. Advisors and managers are, by definition, capital growth partners with investors, as they match funds with appropriate and productive assets. Land investment advisors typically have an expert team in-house, but also it also work with a select group of strategic partners to deliver the best return on its investments.

A capital growth partner in strategic land development provides a good example of how this works. Land is a finite asset, which set against a growing population – in countries and regions where the population or commercial uses of land are increasing – generally means that the land will increase in value. And yet there are many unknowns about individual tracts of land: how is it currently zoned, and what are the chances the parcel or parcels are ripe for development? What other factors, such as new employers entering the area, might drive up demand for property? Are there environmental issues with the land that make it unsuitable or prohibitively costly for development? These are critical questions that a real estate advisor to a capital growth partner should be able to answer.

Capital Growth Properties: A Vital Market Sector

Some land investments qualify as smart capital growth properties. Discerning good from bad is the ultimate goal.

While capital growth is a fundamental and obvious objective of any investor, capital growth properties are an important sector of the market that focuses on real estate.

There is growing interest in capital growth properties for a number of reasons. One is that a worldwide recessionary economy of several years has depressed the price of land almost everywhere. This spells opportunity for many investors. Another is that knowledgeable –or well-advised – land-focused capital growth investors can mine such opportunities that are otherwise overlooked by generalists.

Of note, prospects for a value return may be poor in some locations and countries, but expectations for value increases are justifiably greater in other areas. In the United Kingdom, there is a high demand for land caused by a chronic shortage of housing. The UK government is now committed to a major house-building programme, which will need land to be made available for development.

These factors reflect how land is quite unlike other investments, such as stocks, bonds, foreign exchange funds and hedge funds. The investor who is interested in capital growth properties must necessarily find land investment advisors who are intimately familiar with specific properties and all the variables affecting those properties. Those variables include local zoning, local economies (as they might affect demand for commercial or residential development, for example) and the nature of the land itself.

Capital growth is healthy in some countries but not in others. Investors prefer stable countries and economies with growth potential, including the United Kingdom, the United States, Brazil, certain Mediterranean European nations (France, Portugal and Spain) and several Asian countries (including China).

What are Strategic Land Advisors?

Because investing in real estate requires parcel-by-parcel study, strategic land advisors serve an important function for land investors.

Investing in land under current real estate market conditions is attractive to many individuals and institutional investors. But unlike other investments that allow apples-to-apples comparisons of such things as P/E (price-to-earnings) ratios, multiple variables associated with any property require close familiarity with all parcels.

This work is typically undertaken by strategic land advisors, who put together world-class teams of such professionals who make highly detailed analyses of any opportunity ahead of acquisition.

What the advisors – who generally manage strategic land funds or joint ventures – bring is an expertise in asset growth in real estate. Specifically, strategic land investing requires a skilled selection of property that holds promise for development. Such properties should be situated geographically where growth is likely – through housing or commercial development, in particular. That land also should be ready for change-of-use rezoning, with enthusiastic support of the local governance structure, such that homebuilders or commercial construction firms will find it attractive to purchase. A qualified strategic land advisor should also be able to determine where demand for housing and commercial property exists.

The alternatives for land investors include real estate investment trusts (REITs), which function much like the markets for stocks and bonds. While it enables greater liquidity for the investor, a REIT tends also to be subject to the ups and downs of the markets. Returns from an investment in REITs, consequently, are muted.

Understanding Capital Growth Funds

Funds tied to capital such as land – and not the stock market – are more affected by specific local conditions and benefit from location diversification.

A capital growth fund is any portfolio of investments that is assembled with the intent to generate an investment return. Typically, those returns are reinvested.

Of course, achieving capital growth – to sell at a price that is higher than the price paid on the investment – is a goal, not a guarantee. But the chances of success are much enhanced by working with professional capital growth professionals who truly know the assets that are being invested in. The collection of investments within the fund and the market conditions that affect them determine whether a capital growth fund lives up to its name.

Capital growth funds based in real estate are different from, say, those tied to the stock market. Fund managers look at the distinct and unique combinations of land tracts to maximise certain factors, including local market conditions that would increase or decrease the value of each particular piece of property. A balanced capital growth fund in real estate would also be diverse across many geographical jurisdictions such as counties, as a local political structure can influence how land is used and zoned.

Also, diversification in the likely end use of the land (residential versus commercial, for example) can help the capital growth funds investor hedge against disruptions in any particular sector. The expertise of capital growth fund managers in land acquisition and land planning is therefore essential for developing valuable real estate-based capital growth funds. Experienced fund managers focus on the most profitable part of the land development process: acquiring sites that have been identified to come forward for residential or mixed-use development but do not yet have detailed plans or permissions. Lucent then works with its own in-house team of specialists augmented by a select group of advisors to produce sustainable "development-ready" land sites before selling to house builders or other development companies.

Joint Ventures in Strategic Land

The current state of market-based investing makes strategic land joint ventures the preference among investors who want to avoid volatility.

The contemporary opportunities in strategic land investing are based on several factors. One is that economic conditions have depressed the value of land in recent years. Another is that pent-up demand could well drive an increase in that land valuation over the next several years. A third is that both homebuilders and commercial construction companies are less interested in buying raw properties than in building and marketing those properties after they are made ready for development.

Investors have several choices in how they can participate in real estate on a large scale. One is through real estate investment trusts (REITs), which tend to be subject to market volatility owing, in part, to the liquid nature of the shares. Many investors choose instead to work with managed strategic land investments, through either funds or joint ventures.

In strategic land joint ventures, the defining relationship is between managers with skills and expertise (for identifying properties that will create the best return) and the investors who participate in the enterprise. The managers in the joint venture perform best when they acquire and manage properties that are ripe for a change-of-use rezoning. This creates value by transforming property into ready-to-build status. The significant returns that Lucent has already seen in this area suggest it is both highly profitable and low risk.

Whether the investor chooses a joint venture, a fund or a REIT generally hinges on his or her overall investment and tax strategies. But the strength and track record of the management team in any real property investment should be a key consideration.

Alternative Investments: Minimising Risk in Unknowns

Can the Risks Inherent in Alternative Investments Be Minimised?

The nature of alternative investments such as land makes it difficult to quantify risk. You can overcome the unknowns by understanding the investment opportunity.

The fundamental strategies for investing – minimising risk while maximising returns – are almost universally held and apply to nearly every type of investment. But the uncertain nature of most asset classes in the past few years has radically altered how investors have gone about achieving this. So what is the state of affairs now?

A global survey compiled in 2012 by Towers Watson in conjunction with the Financial Times found that, in general terms, alternative investments are attracting more investment than in the past ("alternative investments" is a term typically applied to managed futures, hedge funds, private equity, exchange funds and real estate). The report attributes a perceived instability in the global financial system, as it affects stocks and bonds, as the reason more assets are being allocated to alternative investments and investment funds.

The leading asset class within the broader category of alternative investments is real estate. According to the report, about 35 % of funds being invested outside stocks and bonds are allocated to real estate, followed by private equity (22%) and hedge funds (21%). Infrastructure and commodities draw about 3% each of the total of about $3 trillion (£1.9 trillion).

The fact that the largest portion of investments is drawn to land suggests that the return will be maximised while risk is minimised. What is it about land that makes this happen? Several factors are in play:

• Natural population increase ultimately leads to land value appreciation. Particularly in the developed world, the matter of supply and demand is the ultimate determining factor. According to the Towers Watson report, “The global economic crisis has spurred the vast majority of investors – both private and institutional – to readdress their asset allocation strategies … [such that they] align their portfolios with basic trends in underlying fundamentals such as population growth and economic expansion in emerging economies.” In countries with a net increase in population from immigration and a high birth rate, that becomes doubly so.

• Land has strategic locations. As industries and local economies shift, so too does the value of land. When a region attracts one or several companies, an employment base and a need for housing will both rise in the vicinity.

• Land use can be managed to reduce risk. When public officials can be shown the value of rezoning an area, this can significantly add to the value of the land therein. Land investment managers with land-planning skills, land development acumen and land site assembly analytical tools are the best equipped for containing land investment risk – and increasing its reward.

All land investment in the UK comes with some risk, but the most strategic land development organisations are satisfying individual and institutional investors who may be unhappy with their more traditional alternatives. For more information, speak with your personal financial consultant.