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 ~