Rural Report: Delivering a development legacy
Estate owners and farmers with land suitable for housebuilding can benefit from a long-term delivery structure. Charlie Dugdale explains how
4 mins to read
The provision of new homes can provide a much-needed cash boost for landowners but many, particularly those committed to future multi-generational ownership, are naturally concerned that poorly designed or delivered developments could have a negative impact on both their properties and their surrounding communities.
That is why Knight Frank supports delivery structures that offer the best of both worlds: significant financial benefits without losing control or compromising on quality.
The financial benefits from a patient capital approach, rather than an outright sale to a developer, can be considerable, with recent examples from schemes we have been involved with showing a 200% uplift in value (and almost 300% in nominal terms) by comparison with an outright sale.
This does not need to be at the expense of quality. In fact, a patient approach can realign a development partner’s profit motive towards building good quality housing.
In April 2019 planning permission was granted for 2,350 homes, along with 25 acres of employment land, within the Bathurst Estate at Chesterton to the south of Cirencester. The landowner, Earl Bathurst, is adopting a patient capital approach in order to stay involved in the project right through to its completion and beyond.
"It might sound a very nice problem to have, but what keeps me up at night is how we get this right for the future community,” he says. “We have taken great comfort in a delivery strategy which allows us to keep the freehold and maintain quality control for the residents of Chesterton. This will be achieved alongside a Community Management Trust which will maintain and manage the green infrastructure and amenities of the new sustainable development"
For those landowners in a position to be able to wait, we suggest that, rather than sell, they bring on a development partner via a building lease arrangement. In financial terms, the landowner receives an up-front premium followed by a “distribution” calculated as a percentage of each unit sold by the development partner.
Such an arrangement allows both the landowner and the development partner to share in house price inflation and therefore favours a business model that focuses on finding ways to build value rather than cutting costs.
The Grosvenor Estate used a similar approach when establishing a framework for development in Mayfair in the 18th century. Now, Knight Frank is adapting the model and tailoring it to the specific needs of its 21st century clients.
HRH The Prince of Wales has long advocated for a landowner legacy approach to building communities and his Duchy of Cornwall estate has been pioneering this at their ambitious mixed-use developments, most notably Poundbury in Dorchester and Nansledan in Newquay. Poundbury and Nansledan have shown that a strong design ethos delivers the necessary price premium to more than outweigh the higher cost of building high quality homes.
At Poundbury the premium is estimated to be 25%, while at Nansledan it is more than 20% in excess of nearby areas.
The building lease arrangement has a number of associated benefits:
• Financial efficiency: paying the distribution at the moment the dwelling is sold reduces financing costs and maximises returns, allowing more to be shared with the landowner
• Risks: the landowner shares in house price movements but is not exposed to cost risk
• Resource: responsibility for infrastructure and housing delivery is passed on to the development partner
• Security: the landowner retains the freehold until dwellings are sold
• Alignment: all parties share the same goal.
As rural property owners search for new ways to make the most of their land’s potential in a potentially post-Brexit world, considered residential development could be part of the solution.
Newhall, Harlow, Essex
Client Case Study
Newhall, Harlow, Essex
Landowner Newhall Projects
Developer: Countryside Properties
Units: Circa 1,000
Lease length: 20 years
Status: The agreement for lease was executed in December 2016. Countryside Properties has since obtained its reserved matters consent on the early phases, assigned part of the lease to a single family housing provider and launched private sales in February 2019.
“A very significant milestone has now been reached at Newhall with the remainder of the land to be developed by Countryside Properties. Like all good deals, this works well for both parties. The deal structure embraces the importance of value in design while allowing the landowners to participate in the success of the project. The landowners will: (a) transfer their freehold interest in the land on a plot by plot basis directly to the end purchasers; (b) maintain an influential interest in the Newhall design ethos and, not least; (c) retain a beneficial financial interest in the project until its ultimate conclusion”
Jon Moen, Newhall Projects Limited
Charlie specialises in tailoring delivery structures for large-scale development projects across England. If you would to find out more, please contact firstname.lastname@example.org