How Much Communication Should You Expect from a Joint Venture Planning Team?

Joint venture planning teams should communicate frequently with investors.

Financial laws in the UK require a certain degree of transparency with all investments. With JVP land investing, on-going communications is essential.

The best investment understood by smart investors. In contrast, financial turbulence and numerous cases of fraud in recent years has sent many investors back to study prospectuses with their financial advisors, eager to minimize risks and to manage their expectations. This is even more so the case, as financiers are drawn increasingly to alternative investments, such as land, precious metals, minerals and hedge funds. Alternative Investment Funds (AIFs) are market-traded securities of smaller-capitalisation firms, also an option for investors who reject the poor performance of traditional stocks and bonds.

Of course, it helps if a fund management firm is both in compliance with the law and oriented toward servicing investor information needs.  A consultation paper (CP12/32, “Implementation of the Alternative Investment Fund Managers Directive”) – compiled by Financial Services Authority in 2012 – makes non-binding recommendations that apply to AIFs but could and should also be used to evaluate the likes of joint venture planning.

In other words, the general directive is to provide clear and periodic communication to investors and regulators on the status of investments.

The matter of communications is frequently described in financial circles as a matter of transparency. FSA says that investors should expect ample information in three moments of the investment:

• Investors should be informed before they invest.

• Investors should be informed on a periodic basis

• Investors should be informed when significant changes occur relative to the investment.

The types of information that should be disclosed in advance of the investment (pre-sale disclosures) are far ranging. That includes a full disclosure of the investment strategy, as well as restrictions to the strategy. The use of leverage in the investment should be well documented and conveyed. The investment should have fully-detailed liquidity risk management arrangements. All fees and charges should be disclosed. Valuation procedures, net asset value, procedures for the issue and sale of shares and third-party service provider arrangements all need to be shared.

On an on going basis, disclosure requirements include an annual reporting, as well as notifications when liquidity arrangements are permitted. Remunerations to staff – broken down by fixed and variable remunerations, as well as senior management and staff – should be provided as well.

Joint venture plan teams for land investments have every incentive to provide frequent updates, given the two to five year life cycle typical of such investments. A well-managed plan run by experts in land acquisition will frequently have milestones to report, including those relating to site planning, commercial development, risk analysis, negotiations and planning applications.

Individuals who invest in joint ventures should do so with counsel from a personal financial advisor. Expectations for asset growth, risk tolerance and timing each factor into a decision to participate in such investments.

How Environmental Issues, Zoning and Planning Affect Land Value

Environmental, zoning and planning considerations affect Land investments.

The Localism Act 2011 reset the rules for land investing. Concerns for local control in planning, zoning and environmental matters can be an opportunity.

Among the many implications of the Localism Act 2011 are those that affect UK investors in land. Formerly, a land investor needed to heed regional decisions regarding land use if the goal was to convert undeveloped property to residential or commercial uses. But a new set of rules shifts those decisions to local councils. The effects of the act are only beginning to be felt, but no one should characterize it as all good or all bad for the investor.

The Act altered the landscape, so to speak. That is not necessarily a bad or good thing – as illustrated by the following points:

• Sustainable communities/Environment – The imperatives to develop in ways that are favourable to the environment are necessary and satisfy the consensus of thought about such matters. While this may negate some plans to use certain properties for certain uses, we now have a clearer idea on what can and cannot be done. It is that certainty that the investor needs.

• Sustainable communities/Local economy – The land investor is now required to make a case for the long-term impact a land use designation change might have on the local economy. So be it! The land investor wants only to increase the value of property, and that cannot happen if the end-use fails to meet a market need.

• Planning – With planning functions now distributed to local councils, there will be theoretically smarter decisions made and plans drawn. We say “theoretically” because it assumes expertise and rational thought in all municipalities, which may not always be the case. Investor groups are tasked with providing a convincing case for how a development will ultimately benefit the community at large.

• Zoning/Land use designation changes – As local decisions are made about zoning changes, they can also be subject to a voter referendum where the majority vote wins. Is it a good thing when citizens overrule elected officials on land use? There are probably as many answers to that question as there are sheep in Australia.

What should be clear is that entering into UK land investment is not a casual affair. One needs to go about it strategically with a convincing land site assembly plan. As more UK investors are drawn away from the stock market to alternative investments, many elect to work with UK land fund managers who are schooled in all of the factors cited above and who can best predict how to achieve asset growth from strategic land development investments.

As should be the case with all investments, individuals should work with a personal financial consultant to identify which investment strategies fit their individual needs and risk tolerances.

Homebuilding and Land Site Investment Are Separate Entities in the UK

Historically, homebuilders bought land, achieved zoning changes, constructed houses, then sold them. But land site developers change the equation – and reduce risk.

After five full years of an economic downturn for homebuilders, sellers and buyers, the news is instead looking up in the United Kingdom. The Wall Street Journal reported in April 2013 that homebuilder stocks were up 80% over the previous 12 months, buoyed in part by the government’s Help-To-Buy schemes announced earlier in the year.

This came about six months after Reuters reported that UK home builders were sitting on land banks, much of which was purchased in 2009 and later, when the price of land had plummeted. They are now about to leverage the value of that land, pending development consent from local planning authorities, to build new homes.

But many of those homebuilders suffered quite a bit through the earlier years of the recession, with portfolios of property that included land purchased just prior to the financial crisis of 2008. That expensive land was a drag on profits – those firms that had deep pockets might have been able to afford to carry the costs, but many homebuilders (particularly smaller ones) fell out of the business entirely because of crushing debt.

Some of this recent land investing and building history helps illustrate how the business of development on raw land has been bifurcated in recent years. Instead of builders taking on the full risk of investing, building and selling, land investment specialists now undertake the first stages. In addition, real estate analysts at Savills report that the forthcoming Basel III banking regulations could constrict debt funding, which further limits how much risk homebuilders will be willing to assume. They will instead look for smaller parcels of serviced (infrastructure-built) properties.

The new approach is for land specialists, themselves or with the help of investors, to make strategic land purchases. They engage in intensive market research to identify where growth is most critical, then investigate raw land where that might be possible, taking into account seller predispositions, existing and needed infrastructure, as well as how amenable to planning changes are local planning authorities. The land specialists might (and often do) build the infrastructure – roads, water and sewer, and electrical capacity – but then sell parcels or plots to homebuilders, who have greater experience at both construction and the marketing of the built properties.

To a land site investor, the holding of property for several years before construction begins – as happened to homebuilders since 2008 – does not fit the business model. The investor’s objective is to turn the investment as quickly as possible, and to buy land in the first place that will sell at an optimal price in the near term. This is part of why land-to-build investors are coming to real estate from other alternative investment categories: If their options are hedge funds, precious metals, real estate investment trusts (REITs) or market-traded securities, the return on investment formula places heavy weight on timing. The land investor may plan to achieve a return in as little as 18 months after acquiring raw land (note: it sometimes can take five years to bring a property to market and realise the return on investment).

A key component is of course zoning changes, taking land that might be designated for agriculture or other uses and have it designated by local authorities for residential or commercial development. Homebuilders may have this capability in-house as well, or may contract it out to others. With land investment specialists, it is an essential part of the business model and a key component of achieving profitability. Relationships with local planning authorities in strategic locations certainly aid in this process.

Land investment, particularly with raw (unbuilt) properties, involves risks just as much as with other types of investment. But by controlling for factors such as land planning, and splitting the risks – and rewards – of building and selling completed homes, residential land investors mitigate those risks. Individuals who are interested in land investments should speak with a personal financial planner to determine if any particular investment fits their overall financial portfolio.

Does Undervalued, Undeveloped Land Still Exist in the UK?

There absolutely are opportunities to increase asset value in UK land with development. But it takes at least four groups of leaders to make it happen.

The value of land has always been understood, going back centuries to when invaders and explorers sought new sources of agricultural products, minerals and places to live. It was a matter of economics that Christopher Columbus sailed for Spain, having convinced the King and Queen that their investment in his adventure would yield a great return.

Surprises in land value appreciation surface from time to time, of course. The Bedouins of the Saudi Arabian peninsula lived a nomadic subsistence for centuries until they discovered oil in the 20th century beneath the undulating sands of their desert kingdom. In a modern world, some land becomes more valuable when an industry (“Silicon Valley”) or a major point of transport is established in previously middle- or lower-value areas.

It’s hard to imagine that some land sites in the UK could be undervalued. The population is growing more so than in the Eurozone, the country being attractive to immigrants of every stripe. This tends to make one think that all land in the British Isles is simply going up in value at roughly the same pace. However, certain sectors – London and the South East in particular – are faring better than their neighbours in the post-Recession economy. Less fortunate are the counties to the north and west, where recovery as of 2013 was slower and less robust.

But in both these favoured and less-favoured areas of the UK there exists land that is hiding in plain sight, ready for investment and development. This is property that for one reason or another could accommodate residential development, but perhaps for the lack of people able and willing to make it happen. These people fall into four groups, and each of them is necessary to take undervalued, raw land and turn it into something much more productive and valuable:

1.    Business leaders – Residential development of market-rate housing rarely makes sense unless there is new or growing employment opportunity in the vicinity. With new jobs must come new people within relative proximity of the new workplaces.

2.    Land investment and planning use specialists – The time and capital required to take raw land and turn it into streets, utilities, homes and homebuyers is typically two to five years, when all goes well. So someone has to carry the considerable costs. While banks historically have done this, stringent lending standards are driving more developers to find private investors (who, it should be noted, are flocking to real estate because of disappointment with other types of investments). This is typically a “round one” of the development process, where the investors’ money is used to acquire sites, work with local planning authorities to get appropriate zoning approvals, develop sewers, other utilities and streets, before selling the land in “round two” for construction.

3.    Local planning authorities – Only towns where growth is desired will approve land use changes necessary to support development.  Thanks to the Localism Act and other efforts under the National Planning Policy Framework, the decision-making power has been decentralised to enable smarter planning in the hands of those most affected by it.

4.    Homebuilders – These are the “round two” leaders who complete the process. They identify the size, type and value of homes that are needed and are most likely to be sold successfully, after which they construct them.

Of course, each of these groups acts out of self-interest. But they must work in cooperation to a certain degree, and usually share the goal of financial success for the community as a whole.  Lately, there has been a surging interest between civic leaders, business leaders and property fund managers to create joint venture partnerships and pool their resources for mutual gain.

The place for individuals to participate in this leadership process includes the investment side. Anyone with £10,000 or more to invest can work with the land development specialists. But before doing so, such individuals are encouraged to seek advice from an independent financial planner, someone who can objectively review the alternative investment opportunity to see where it fits the investor’s risk portfolio.

When Buildings are Better than Open Land

The need for UK housing is challenging the greenbelts and rural lands.

Britain’s natural beauty is indeed one of its greatest assets. But a critical need for housing is forcing a discussion on the sacrosanct nature of open lands.

A primary point of debate around the UK’s critical housing shortage is whether or not to build on greenbelts and the open countryside beyond, typically agricultural and forested areas. The argument often boils down to a two-dimensional, either/or choice between increasing density in towns versus building outside the metropolitan areas, accepting a certain degree of American-style sprawl that loses forever some of the best characteristics of the country.

But in truth, the choices need not be quite so distinct. Neither side of this argument has to count themselves winners or losers, as more hybrid approaches can be considered – and in fact are already being implemented on a limited scale. This is not just wishful thinking. Research indicates that there are many choices that allow for different means of expanding land availability to the single goal of increasing the supply of housing.

Considering how investors in the development of strategic land have land investment funds ready to go to work, this is a topic that needs creative thinking. The housing need is great, and developers and homebuilders are also raring to go.   The question is, where can they build?

The greenbelt concept, first implemented in the 1930s, was remarkably prescient in what it sought to achieve. While other countries (in particular the United States) were expanding their metropolitan regions far from core cities – allowing automobiles to become the primary means of individual transport, enabling middle class workers to have larger homes and gardens while they commuted to downtown employment – cities such as London, Cambridge, Nottingham, Bristol, Dorset, West Midlands, and on the Continent (Germany in particular), preserved their dense and compact downtowns with designated greenbelts.

The vision of what greenbelts should be is a region of land enveloping the cities that democratically provide recreation and fresh air to the populace. For the most part, that is what was created. The more densely populated cities of the UK keep people closer to workplaces, stores and community amenities, much of it accessible by foot, public transport or bicycle. Conversely, those sprawling suburbs in the States mean that workers spend onerous stretches of time in traffic, traversing 8-lanes-wide of asphalt from one suburb to the next, leaving little time to enjoy those larger houses and gardens.

The British have a distinct love for greenbelts and in fact have added about 25,000 hectares to the 14 greenbelts in the country since 1997. Local authorities have further plans to increase various greenbelt lands by 12,000 hectares in the future.

But while greenbelts have largely succeeded in their initial goals, they face increasing scrutiny largely because of the housing shortage. The policy is attacked for being too rigid. Also, greenbelts don’t always achieve the intended goals of preserving environmental quality as they are poorly managed in some locales. Among those who criticise the current configuration of greenbelts are the Town and Country Planning Association (TCPA), which decades ago had championed their existence. Since 2002, the TCPA has suggested the greenbelts instead be broken into wedges, gaps and corridors, largely in response to the housing needs.

Baroness Hanham, communities minister in the House of Lords, is critical of absolute policies that protect greenbelts as sacrosanct. She is quoted as advocating for more rural development, so people “can live in the villages in which they were born,” as well as for social housing because some of the land is “not absolutely brilliant” and therefore would be put to better use as sorely needed housing.

For example, an abandoned powerhouse in Formby (Borough of Sefton, Merseyside) sits in greenbelt land. A draw to vandals, it is regarded as an eyesore yet a proposed 62-home development (10 per cent dedicated to affordable housing) is encountering resistance from a community group. The development would require some additional use of greenbelt land, but would also put derelict land into productive use. Should the old building continue to stand and deteriorate, or would it be better to build sensibly and add community infrastructure improvements along with it?

Of note, development of any housing on raw, open lands need not favour social housing over more expensive private homes – or vice versa. The Joseph Rowntree Foundation (JRF), which advocates for affordable housing, looked at eleven countries that are similar to England in how they approach land supply, including restrictions on sprawl and protection of agricultural land. The Foundation concludes that a more sophisticated, layered approach to growth management, “rather than urban containment,” should be considered.

JRF also argues for proactive planning, such as compulsory purchase, because the current housing approach is often incoherent. As an advocate for social and affordable housing, the organization also champions land auctions and land assembly as a means to effect sound development.

Private and institutional investors increasingly are interested in building new housing, both to buy and to-let, wherever such development fits into town growth strategies. Strategic land advisors who engage real asset funds to build are typically cognizant of those town strategies. Clearly, the questions around greenbelts and raw land have to be answered in many areas where development is needed.

With investors ready to build, such conversations and decisions are being pushed forward, making these kinds of debates more likely in the future as more capital is freed up to build much-needed homes. Individuals who invest in development that requires planning permission should consider whether strong opposition exists in that planning authority; they should also discuss such investments with an independent financial advisor who can determine if the risks and rewards of property development fit the portfolio of the investor.

What Is the UK Community Infrastructure Levy?

The purpose and implementation of the Community Infrastructure Levy is part of the 2008 UK Planning Act.

The increased burden on infrastructure from new developments is real and should be built into development costs. But is the CIL the way to do it?

The Community Infrastructure Levy (CIL) is a product of the UK Planning Act 2008, enforced since 2010, as a means of making developers pay for the increased burden on infrastructure that comes with new homes and businesses. It is an outgrowth of earlier recommendations in 2003 from economist Kate Barker, who felt that planning gains that went to developers should be partially channelled to overburdened infrastructure features (roads, schools, utilities, etc.) and to increase the stock of social housing.

UK strategic land investors, of course, need to take this into consideration. Infrastructure will make the properties they develop more valuable – but only if funds from the CIL are put to use in ways that materially affect the new developments. Evidence suggests this does not always happen that way.

In its most basic form, the CIL is charged on any building that has some degree of human occupancy (i.e., not parking or warehousing) including residential, commercial and retail space. Only buildings adding or constructing anew 100 square metres or more of floor space (gross internal area) on or after 6 April 2013 are subject to the levy. Changes of (existing) building uses are not liable, nor are structures that are not actually buildings (such as warehouses or wind turbines). Social housing development and buildings owned by charities are exempt as well.

Implementation of CIL has of course met some criticisms, many of which make a legitimate point. Because local planning authorities collect the levy and apply it as they choose – within prescribed parameters, of course – they are instructed to establish charging schedules. This was to be completed as of April 2014 but now is likely extended to April 2015. Those authorities can also set different rates for different sized developments, however they must establish evidence to justify those different rates.

Importantly, a “CIL in kind” provision allows that developers themselves may be best suited to build certain infrastructure components using cost-effective methods. For example, when building a community of 50 homes, the developer or homebuilder might be able to establish water and other utility services with the equipment they already have in place, where they are most familiar with the land and adjoining infrastructure. It could be much more cost efficient than to channel funds through a bureaucracy that then hires a third party to do the work.

A columnist for The Guardian who writes on local government issues took a swipe at the CIL for having a significant unintended consequence. Ian Blacker wrote in October 2012 that the CIL may actually be reducing the number of affordable homes. He cites how in London, the mayor wants to channel CIL funds to the gargantuan Crossrail project, not social housing. Also, that the CIL funds in any planning authority can be geographically used anywhere in that authority, well removed from where the infrastructure needs are increased by new development.

Blacker concludes the CIL is uncharted territory, stating, “we are entering the realm of unintended consequences.” To the developer, joint venture land investment managers as well as the local planning authorities, this may be unsettling news.

But the demand for housing is largely unmet; investors in development still find places to build and where the return on investment makes it worthwhile. Whether or not the CIL cuts into planning gains is yet to be determined; would-be capital growth fund investors are encouraged to consider CIL costs and speak with an independent financial planner to see where real estate investments might fit within a broader investment portfolio.

The Battle Over Land Planning Reform in the UK

UK land planning reform is a battle of tough choices.

Clearly, greenbelt and other open lands in England are among its greatest assets. But raw land development might be a smart answer to the housing crisis.

All over the developed, industrialised world there is a somewhat civilised form of conflict over land use. Everyone agrees a rational approach should be used to accommodate the increasing population – perhaps even more so in the UK, where population is growing faster than in most of the Eurozone – but that rationality takes a different form when sacred areas such as open land and greenbelts are targeted for development.

The unique characteristics of land planning and housing shortages in England and Wales, in particular, foster a particularly heated battle. In one corner are the preservationists – The Campaign to Protect Rural England, in particular – who largely consider maintaining the absolute sanctity of greenbelts and Areas of Outstanding Natural Beauty as their mission. These tracts of land were created to bring a quality of life to the country; any compromise thereof is considered a betrayal of the intent of the founders of these movements.

Resistance by these groups to development does not stop with housing. Commercial construction, mineral extraction and even wind farms face opposition. Even those who publicly laud the economic benefits of each of these things will adopt a NIMBY (not in my back yard) posture when it affects their own town or neighbourhood.

The other side of this battle might be considered the pragmatists, those who view the country’s pressing housing needs as reason enough to rethink and revise the use of such lands. Homebuilders and developers (including those working with managers of property funds), of course, are a driving force in this debate, following an obvious economic interest. But so too are affordable and social housing advocates, who argue that limitations on all building is driving the exorbitant cost of housing at the lower end of the economic spectrum. The poor and working classes are increasingly burdened with little space even while an increasing portion of their income is consumed by rent. Affordability for buying is dropping, as a full 20 per cent of housing now being built is for the to-let market, up considerably since 2000.

The adoption of the National Planning Policy Framework in 2012 was heralded as a means to simplify procedures and encourage acceleration in development, replacing a difficult, time-consuming and not always rational system. In outlining the Framework, Minister for Planning Greg Clark, MP stated several priorities for land use in the UK:

• Encourage economic competitiveness
• Ensure town centre vitality
• Promote a prosperous rural economy
• Drive sustainable transport
• Push for high quality communications infrastructure
• Offer broad choices in quality homes
• Foster good design
• Create healthy communities
• Provide greenbelt land protection
• Meet the challenges of flooding and coastal change and climate change
• Conserve and enhance natural and historical environments
• Insist on sustainable use of minerals

Specifically under green belt land protection, the plan says the Government “attaches great importance” to them, honouring the fundamental goal of preventing urban sprawl. “The essential characteristics of green belts are their openness and their permanence,” it states. It also prioritises “the recycling of derelict and other urban land.”

At the end of the analyses, the complexity of the problem suggests a complex solution – some open lands might be worth sacrificing to achieve social goods, while other areas absolutely must be protected.

Strategic land investment in development needs to be sensitive to all these needs. In parallel, they need to answer to the dictates of responsible asset management. Would-be investors should always balance their real estate investments with their social conscience as well as their financial risk tolerance, ideally with the counsel of an independent financial advisor.

Is 9% of Developed Land In the UK Enough?

What makes development on 9 percent of UK land a set point?

Advocates for greenbelts and open lands find Government proposals to build outward unsettling. But the housing shortage for a growing population may require it.

Members of a national organization that campaigns for the protection of countryside, the Campaign to Protect Rural England (CPRE), heckled UK Planning Minister Nick Boles when he spoke at their annual meeting in June 2013. He proposed that the 9 per cent of England that has been built upon should be increased to 12 percent. This proposition proved to be a lightning rod, bringing about strong opposition from the CPRE and other aligned organizations.

But is it such a terrible idea? Can open lands be forever protected as sacrosanct? The UK population grew by 7 percent in the decade measured by Census 2011, a trend that shows no sign of abating. Homebuilders cite a plethora of reasons why they build only about half as much as is needed, but land investment funds eagerly seek places to invest and build. It is the economics of scarce land that constitutes a large part of the equation.

Toward those interrupting him as he spoke, Minister Boles lashed out by saying that rural villages would “become fossilized” if land development were blocked in certain areas. Indeed he makes an important point, as the number of individuals engaged in agricultural work has diminished in recent decades, due largely to increased efficiencies in how farming is done. If new (non-agricultural) employers cannot find a population of workers, they simply will not locate their operations where the population is scarce.

To be clear, the housing shortage in the UK is so critical that the following are now points of deep concern:

• The laws of supply and demand seem to be hard at work – much to the disadvantage of the homebuyer. The Institute of Economic Affairs (IEA) reports that, in nominal terms, “house prices in the UK have increased by a factor of nearly forty over the last forty years. Rent levels have followed suit.”

• Social housing, which once numbered 5.5 million units in 1981, now is reduced to 3.8 million. On the waiting list are 1.75 million households. People without dependent children are excluded from this list altogether. This further adds to the price pressure in market-rate housing.

Such discussions almost always prove to be contentious. And data from one study to the next sometimes provide widely different opinions on such matters.

One misperception is that the National Planning Policy Framework (NPPF) tilts land use toward development over greenbelts and the official Areas of Outstanding Natural Beauty (officially designated countryside lands deemed to have significant aesthetic and environmental value, so determined by the UK Government by way of Natural England). To the contrary, the Institute of Economic Affairs (IEA) observes that the NPPF advocates for residential development on open (raw) lands outside of the greenbelt and Areas of Outstanding Natural Beauty.

The CPRE counters that more than 400,000 brownfield sites already have planning permission and should be built upon first before green lands are developed (buried in that statistic is how many of those sites have industrial waste residue that needs remediation, an additional cost added to an already expensive housing equation).

The IEA singles out the blame for the housing crisis. According to its report, “Abundance of Land, Shortage of Housing” (IEA, April 2012), “Planning restrictions are a key determinant of housing costs.” The report advocates for a liberalisation of the land use planning system as a means to address the housing affordability crisis, citing a number of studies conducted in the UK, elsewhere in Europe and in the United States.

The battle will undoubtedly wage on for some time to come. But to be clear, institutional and private investors (often, those interested in a joint investment land opportunity do so through alternative investment funds) are increasingly interested in raw land as an investment, seeking planning changes that enable them to add to the housing stock on otherwise non-productive acreage. When those planning changes are achieved, the process is effective. But before an investor elects to participate in a land-to-houses scheme, they should consult with a qualified financial advisor who can help weigh the nature of the investment against other savings strategies.

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.

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 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 ~

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.

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.