Vetting Property Fund Managers: Whom Do You Trust with Your Land Investment?

Vetting Property Fund Managers: Whom Do You Trust with Your Land Investment?

When investing in land, most people need to work with experienced professionals. Every development is different, so check their skills, strategies and values.

The word “trust” has many applications in the world of finance and investing. And yet at its core it is about putting belief along with cash into the hands of others. It is deeply important and can be equally unnerving to even the most seasoned investor.

Property funds at least have the advantage of including a real, tangible asset. Investors can visit a site that is being developed, observe land features and the characteristics of nearby commerce and populations. It is possible to see how a property fund management firm can transform raw land into much-needed housing.

But how does an investor know which developers are going to do best with his or her money? In which firms can the investor know the best strategies are devised, the smartest property acquisitions made, the land use proposal is likely to achieve planning authority authorisation, and the property can be profitably sold to homebuilders and home buyers?

Independent financial advisors (IFAs) can access a firm’s track record, perhaps more readily than can an individual investor. But regardless of how that information is found, past performance of a fund manager is an essential part of vetting who to trust with your pounds. Property funds could and should also be considered on the basis of at least three other factors:

• Fund leadership – What is the track record of individuals who make up the executive team at a fund? How adept might they be at adjusting to the variables of broader economic factors (such as the 2008 financial crisis and subsequent recovery), or to the specific features of past land development projects? How much time did executives and fund specialists spend in related industries, in tangentially-related industry sectors, and working with institutional investors?

• Property development strategies – The business of land, planning authority approvals, infrastructure development and building construction have many variables. Ask questions about how it will be done, what makes this management team likely to succeed where others may not, and how they plan to extract maximum value while creating saleable properties.

• Values – There are responsible and irresponsible ways to develop property, which, while based in intangible philosophies and ethics, can still impact the net financial results. For example, an environmentally sustainable development might involve upfront costs (but not always); with more sophisticated buyers, those sustainability features can be perceived as valuable and net a higher return. Ask the people who are managing your real asset investing about the newer analytical tools that assess the long-term value of “green” building and infrastructure features.

In a recent publication from the Urban Land Institute, “Emerging Trends in Real Estate Europe 2014,” various property development leaders weigh in on who is funding the industry and how. The availability of financing has improved slowly since the financial meltdown of 2008, yet traditional lenders such as banks have been slow at increasing their participation until recently. Traditional financial institutions tend to avoid “time-consuming and tricky deals,” says the CEO of a multinational REIT – providing opportunities in the near term for alternative lenders such as institutions and the individual investor. For more guidance on this, contact an IFA.