1. The past decade has seen residential Master Developers (MDs) playing an increasingly important role in the UK’s development market, helping to accelerate housing supply through the delivery of strategic housing led developments.
2. Those acting in the role of MDs are responsible from first conception and planning, all the way through to the implementation of these major projects, either through direct development or serviced land sales.
3. We find that there have been many factors that have contributed to a prevalence in this kind of large-scale strategic development in the past decade.
CONTRIBUTING FACTORS TOWARDS INCREASE IN MASTER DEVELOPERS
1. We now have a mixture of Property Companies and Housebuilders acting as MD’s – Together with a limited number of the major quoted housebuilders that have started to gravitate back towards strategic developments as a source of long term supply for direct development; we have also seen the rise of Property Companies specialising as Master Developers, often through partnerships, with varying degrees of self-delivery and the provision of serviced parcels as wholesalers to the wider housebuilder market. Both business models complement each other and lead to better efficiencies.
2. The ‘helping hand’ of government - Housing supply is high on the political agenda and has been for many years. There has been a very significant impact in the form of government loans and grants for infrastructure works, especially from Homes England. This has improved viability of large schemes and has also helped to speed up delivery.
3. Environmental Social Governance (ESG) matters and the commercial success of placemaking - In recent years, we have seen an ever-brighter spotlight being shone on ESG matters. Large scale strategic land often presents better opportunities to create sustainable development. There is also growing realisation and evidence that successful placemaking is not only good for communities, but can also generate better returns.
4. Increasing pool of patient capital – There is a ‘structural undersupply’ in UK housing. Capital is more readily available for strategic land opportunities.
5. Planning system acknowledging the role of large strategic sites – Planning policy is increasingly at ease with strategic land developments. Many local authorities see the benefit of having a large site/sites to add certainty to housing land supplies. There are also major planning reforms on the horizon which could see a switch to a zoning style system and expedited permissions.
6. Success of partnership models – There is a growing established track record of entities working in partnership to deliver large strategic land projects, often in JV vehicles. The overall success of these partnerships is paving the way for more to be involved.
TRADITIONAL MODEL
1. One of the biggest challenges to creating greener models for infrastructure in land development is the time investment required on all sides. Cities don’t have the luxury of working out a model in isolation, when the development clock is ticking.
2. Each subdeveloper is usually responsible for underground stormwater pipes, sewers and other control features. This incremental approach is typically less aesthetic than a green solution, such as a water feature running through the center of the development, but it doesn’t require upfront coordination or financing.
DEVELOPERS RESISTING TO CHANGE
1. By contrast, if a city wants to implement a comprehensive green stormwater solution, where all of the subparcels would tie into a common water feature, it needs to be designed and financed before the subdevelopers enter the picture. That means also that the model for repaying the cost of the infrastructure has to be developed in advance.
2. At the earliest stages of a potential project, the public sector wants to maximize community input, and make sure everyone’s voice is heard as a development progresses.
3. The public sector often wants to make sure citizens have a chance to shape the development, by including such things as green infrastructure and water features before final decisions are made on land acquisition and site planning. These green stormwater solutions may be a small element of the overall infrastructure, but they have a pivotal impact on the quality of life for residents who may not have access to other green amenities.
4. Yet before development rights are fully secured, the private sector frequently wants to work below the radar, so that competitors can’t jump in on the project. While an early publicity effort or an extended planning process may be helpful to future sales, it can be detrimental for competitive reasons. Thus, the details for a green stormwater infrastructure solution usually can’t be worked out until a developer is ready to bring the basic plan to the table.
5. Further on in the project, the public sector often wants to disclose at least some of the financial information so that taxpayers and rating agencies can understand the likely impact of the decisions being made. At this point in the process, the private sector often wants to keep financial details private until they are finalized so that potential lenders get a good first impression of the development, and so that their flexibility is maximized. The developer may resist a new model at this point because any kind of uncertainty about future obligations could discourage future lenders.
6. Once construction financing is acquired, the developer often faces external deadlines that require the company to show progress on the project. If the developer fails to meet these deadlines, loan agreements may allow lenders to demand immediate or accelerated repayment or increase interest rates, due to increased risk. Any kind of delay can be expensive or fatal to the project. At this point, the developer will often be very willing to promote and publicize the project, but will be less willing to explore changes that may slow its development. In addition, developers will be sensitive to any uncertainty about future payments that may be imposed on buyers of individual parcels within the development.
7. It’s exactly at this point – when the project is fully shaped, but not built – that the public and public agencies will most want to weigh in on the plans. Public engagement could result in changes that would delay the project and have significant financial consequences.
NEW MODEL BY PUBLIC SECTOR
1. First, the public sector can develop information that will reduce uncertainty for developers and their lenders. Greater information about the cost, financing and likely repayment structure can indicate to developers the bounds of their likely obligations, and create assurance that there won’t be delays in implementing the new solution. The public sector can facilitate changing the model by addressing developer concerns upfront.
2. For the initial, proof-of-concept models, the public sector can provide guarantees and fallbacks that will limit the exposure to potential risk by defaulting back to a non-green solution if limits on time and money are exceeded.
3. For example, a city can offer to cap the developers’ exposure to additional maintenance costs from green stormwater models for a certain number of years, or link fees to a certain percentage of development-related revenue.
4. Once implemented, the public sector can make use of successful models from other jurisdictions. That’s partly why Living Cities is supporting the city of St. Paul in developing a model for green stormwater infrastructure on the West Side Flats.
5. If developers can have access to a playbook that lays out the costs, financing plan and future obligations for buyers, they can be Equipt to Innovate without risking their investments.
6. These models can show the private sector that it doesn’t have to give up on making green in order to make their developments greener.
Source:
https://www.cbre.co.uk/
https://www.governing.com/cityaccelerator/blog/creating-new-models-for-infrastructure-in-land-development.html
