What are the relationships between land fund managers, local governments and planning authorities?
There are formal and informal ways by which investor-financed developers achieve changes in land use. But community relationships and flexibility are also important.
From an investor’s perspective, real estate fund managers are the professionals with the skill set necessary to grow assets that are earmarked for real estate development. Ideally, they make the calls that are needed to buy land at a low price and resell it at a much higher price – the higher the better.
It is about more than intelligent and strategic physical development. Key negotiation skills are required of the people who guide these alternative investments through the process, starting with negotiating the initial purchase price of the land. But of equal value is the function of negotiation and management of the planning license.
Local planning authorities (LPAs) are critical to the land value appreciation formula. Most work objectively, trying to meet the needs of their constituents with appropriate and manageable growth programs. But their decisions are not made in a vacuum: there are several means by which they determine whether or not to approve a land use change:
• Formal – It is up to the local planning authorities to have an established development plan, with which changes in use must be complied with. This requirement is emphasized by the National Planning Policy Framework, which published new requirements in 2012. There, the NPPF stipulated that LPAs establish a development plan to promote net housing growth in a relatively short period of time. This requirement was raised to enroll local municipalities in the cause of increasing the housing stock, a critical national need.
• Informal: Sadly, only about half of the towns and cities in England and Wales have developed their NPPF-mandated plans by mid-2014. Among those that do not, the process necessarily follows what the developers propose to the authorities. Those authorities may reject proposals for various reasons, however, it is logical that they are predisposed to a positive review of such proposals due to the critical housing situation. This is where real estate fund managers need to be resourceful and convincing in communicating the benefits of the particular development they are proposing.
• Community Involvement – The Town and Country Planning Association advises that community involvement be at the heart of planning outcomes. Certainly, when there is a well-organized opposition group that opposes development, the community can be heard and powerful. But experienced land fund professionals should be able to identify shared goals, and make adaptations and adjustments to development plans, which create alliances within those communities that can at least balance the discussion.
As government agents, planning authorities strive to find a consensus while respecting divergent opinions. Similarly, investment groups work to identify common ground so development can eventually move forward.
People considering land as an investment should seek an independent financial advisor to discuss two factors. One is the perspective of real estate investing itself, and the other is determining how real estate and other forms of real assets influence an investor’s unique wealth portfolio. Medium-term relative returns on investments based on land use (typically 18 to 60 months) are part of that consideration.