Patient capital investment in real estate development

We have recently hosted two incredibly informative and fascinating discussions on patient capital investment in real estate development, in our series of “on the sofa with…..”.

Patient capital investment represents a long-term commitment to a real estate development project.  It is made by investors who can wait for a return on their capital through the whole development cycle of a project.  It is a key feature of the master-developer model seen to its best effect on large-scale strategic sites.  Patient capital allows a holistic approach to place-making, community and sustainable development, providing augmented returns from the added value of higher quality achieved over a longer time-frame.

Our first discussion was with Nigel Hugill, Chief Executive, Urban&Civic.  Nigel describes the “hockey-stick” of patient development finance as requiring investors to commit to “net money out 3-7 years; net money back 15-20 years”.  He emphasises the importance of institutional funding of strategic sites being directed not at the long-haul of achieving planning consent (the preserve of those with “a bespoke set of skills and a certain masochism”) with a return when the development site is sold by promoter to housebuilder.  But rather that funding should be directed at place-making: early delivery of the green spaces, community facilities and schools – and earlier than the housebuilder’s standard viability appraisal, return on capital investment and development margin usually allows.

The master-developer model, backed by patient capital, allows for one developer to take responsibility for implementing the site-wide elements of the development planning permission and planning obligations and with that take a comprehensive approach to the delivery of infrastructure and community facilities at the right time for the community.  In turn, this allows housebuilders to focus on doing what they are best at – building. This will often be on a fully serviced land parcel and to a site-wide design code.  As the planning risk and the wider infrastructure burden is removed, the housebuilder can focus on delivering a quality product.    It leads to a democratisation of the housing development land market, making it accessible on an equal footing to a range of housebuilders, specifically to small and medium sized enterprises.

Over time, patient capital put to work on strategic projects will yield a premium return on investment, accelerate housing delivery, achieve higher quality new homes and lead to better placemaking.

You can watch a recording of the discussion, "on the sofa with Carina Cobbold and Nigel Hugill" here (please scroll to the bottom of the web page for the Nigel Hugill webinar.)

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