- "If the land is not expected to generate a 21% return on it, we do not buy"
The lack of sufficient buildable land with planning permission in the UK puts the British residential market in short supply for a huge demand, a situation which has not gone unnoticed by Lucent Group, who launched the Lucent Strategic Land Fund (LSLF) in September 2010 to take advantage of those market shortages.
Given this situation and the need to increase the housing stock, Lucent saw an opportunity to focus on those areas of greatest growth in England, as explained by Kevin Ballard, Business Development Manager for Lucent Group in an interview with Funds Society.
Ballard reaffirms that residential development land in the UK is a limited resource, so it is an asset that institutional investors increasingly incorporate to their portfolios. "This shortage will only increase, because as the population increases land will become increasingly scarce, so its value will continue to rise."
Due to the strict Government National Planning & Policy Framework guidelines it has been difficult to meet planning requirements but as LSLF was created from an established land site assembly company all the expertise, experience and contacts to be able to deliver sites is available ‘in house’. With housebuilding in the UK at its lowest since the point in over 50 years and the failure to satisfy the constant increase of the housing demand in recent years has created a 'structural deficit'.
The experts on the field acknowledge that the shortage of residential development and land with planning consent is the key constraint for increasing the housing supply; "this is exactly what LSLF delivers". The proof of that is in last years amendments to the National Planning Policy Framework, in order to focus the effort on make more dynamic the house building process, as well as to work towards a sustained development in the country, among other objectives.
The British Government is trying to increase the housing supply. But up to the present day, there are not enough sites with planning consent to meet the large demand for houses in the UK, where historically, the land is some of the most valuable in the world.
The Fund can only seek control over land that has already been identified for residential development by a local council/authority and typically close to large towns or cities in areas of identified growth. This greatly reduces risk. Lucent then undertake all the work involved in the planning process to achieve planning consent. This planning stage can take between 1-3 years.
The next step is selling the land to national housebuilders, Lucent do not get involved in the development of it. As well as not being involved in the building process, neither do they invest in land if they do not see a clear opportunity. "If the land is not expected to generate a 21% return on it, we do not buy", stated Ballard. Independent pre acquisition financial modelling is used to reverse engineer the anticipated return.
Ballard also explained that before they buy, they run 12 physical Tests to determine the situation of the land and viability of the site.
"This targeted acquisition strategy is aimed at mitigating planning risk while enabling shareholders to benefit from the largest capital gain anywhere within the real estate cycle", Said Ballard.
The Lucent Strategic Land Fund (LSLF) is Open Ended, domiciled in Luxembourg and regulated by the “Commission de Surveillance du Secteur Financier” (CSSF), the Luxembourg financial services authority. LSLF commenced operations in September 2010 with the objective of providing capital gains in excess of 12% net of fees to the investors. It has returned 62% since launch.
The Fund is distributed through broker dealers and IFAs with an increasing focus on institutional investment. LSLF is available via numerous insurers, Banks & investment platforms including Pershing.
LSLF has a truly global investor base with the main markets being: Far East, Middle East & Latin America. Lucent are focusing on expanding their LA investor base and were in Miami to meet Pershing broker dealers as the Fund has recently been added to their platform.