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 second discussion was with Gail Mayhew, Principal, Smart Growth Associates and Charles Dugdale, Partner, Knight Frank. Together they are co-founders (with Ben Bolgar) of The Stewardship Initiative. Their recent involvement with the production of Living with Beauty the report of the Building Better, Building Beautiful Commission enabled both of our guests to speak with insight and authority on the subject of patient capital in the built environment.
One of key findings of the Commission was that short-term profit in real estate development is at the cost of quality and beauty in the built environment. Patient capital, employed by a master-developer with a long-term vision and a stewardship role defers the return on investment, but augments it by the added value that is achieved through the beauty and placemaking in delivering a comprehensive masterplan. As the report says “…one way to achieve a reliable uplift in value, while financing he aspects of placemaking that have no economic interest for the one who builds for an immediate sale.”
Gail and Charles shared with us their views that adopting a higher quality approach coupled with a long-term vision, which is enabled by patient capital, mitigates the housebuilders’ sales risk. It can increase landowner and investor receipts, as developer margins may be slimmed a little, whilst at the same time giving scope in development appraisals for more focus on quality product. In turn, that allows for greater investment into the placemaking objectives of the project as a whole - a virtuous cycle of a more attractive new place to the new homebuyers, allowing housebuilders to achieve better values on new home sales.
We learned more about the aims of The Stewardship Initiative and the findings of the Building Better, Building Beautiful Commission than there is room for here. So do take the opportunity to watch a recording of the discussion, On the sofa with Gail Mayhew and Charles Dugdale hosted by Carina Cobbold and Lauren Parker here.