The conventional way of financing property development entangles those involved in a web of debt and conflicting business interests. A new way of organising developments promises better buildings, more affordable rents and a stake in the outcome for everyone. This week we are featuring two articles from Fleeing Vesuvius which describe this new approach, which is known as ‘equity partnership’. Such partnerships provide an alternative way of becoming a property owner and gaining a voice in the management of the development in which one lives. They should also be very stable and secure investments for pension funds.
Chris Cook describes how equity partnerships would be structured in such a way as to ensure that everyone involved, including landowners, developers, tenants, local councils and other stakeholders, would have their interests aligned. This contrasts with the current system which tends to pit them against each other. James Pike gives examples of how such partnerships could work to rescue building projects hit by the downturn in Ireland. His article includes a July 2011 update.
Read Chris Cook’s article
Read James Pike’s article
Featured images: Windows. Author: Linder6580. Source: http://www.sxc.hu/photo/1334746
FEASTA has developed a proposition for receivers and adminstrators of unfinished estates in Ireland and the UK. We will populate our existing Equity Partnership model with quantified costs and agreed assumptions for a specific estate, and jointly review the results with you and the appropriate council.
As James Pike and Chris Cook have noted Equity Partnerships are a type of Limited Liability Partnership designed to align the interests of all stakeholders in a given property development, avoiding conflicting business interests and encouraging better quality building and affordable rents. They are expected to become a standard operating model for future property development, but are particularly appropriate when capital investment is hard to source. Typically the equity partners would include the landowner, the developer/ contractor, local authority, occupiers and investors. The Charter governing how these partners co-operate in the completion and management of the Estate is created and revised by a Custodian – a purposely created body specific to a given Equity Partnership.
The Equity Partnership model is not expected to completely replace the freehold sale and mortgage model, but in a period where renting is likely to become far more common it provides an opportunity for occupiers to steadily and flexibly build equity without pre- committing to mortgage debt.
An equity share is expected to deliver a return on investment of between 3% and 5% provided rents are set at affordable levels to minimise voids. The investment is particularly suited to pension funds because of its stability and predictability. International Investment Funds are known to be positive about schemes based on affordable rental income.
To arrange a follow up discussion please contact FEASTA.
Graham Barnes
Senior Policy Advisor, Feasta
Managing Partner, Feasta Sustainability Consulting LLP
http://www.linkedin.com/in/grahamjbarnes
gb@feasta.org
https://www.feasta.org
00 44 1747 821480 (UK)
00 44 7768 291125 (mobile)
00 353 1 657 1909 (Ireland)