In recent years we have observed a wide range of UK real estate investors – from new entrants through to more established institutional names – seeking to diversify their asset types by funding developer-led schemes.

Market direction
The growing appeal of sectors such as residential and purpose-built student accommodation (PBSA) means that such assets are now established components of an institutional investor’s universe.

Traditional sectors, notably retail, will form a far smaller component of real estate portfolios in the future. Investors will increasingly look to collaborate with sector-specialist developers in order to diversify their portfolios through both the repositioning of existing assets and the delivery of new schemes.

Development monitoring providers are therefore in demand – a Development Monitor is a Project Management expert who can oversee the project on behalf of the investor, representing their interests.

As investors enter these sectors and forge new relationships with often unfamiliar partners, those appointed as Development Monitor have a crucial role in building the relationship between investor and developer.

A method which balances objectives
The Development Monitor must be a bridge, not a barrier, between the funder and developer. If the right risk/ reward balance is to be achieved there must be a sound understanding of each party’s commercial objectives and their specific requirements. Crucially, it is essential to identify where naturally occurring conflicts may arise, recognising that these are usually just a by-product of the parties’ different positions in the capital stack. Once potential clashes are identified, solutions can be found and progress can be made.

The cornerstones of any project’s success are the quality of the information at commitment and the standard of the product at completion. After all, these items are crucial contributors to value and liquidity. It follows that the outcome will often be reflective of where a funder sets the bar in terms of specification and compliance. This often far exceeds basic statutory compliance, particularly in the increasingly important areas of Environmental, Social and Governance (ESG). The time-cost-quality dial is usually set differently depending on which side of the table you sit.

The differing styles and drivers of the partners in any developer-led project need to be identified and managed in a collaborative way. The usual rigorous approach to procuring and understanding key information should be combined with the ability to foster a strong working relationship with the Developer team. When the relationship is managed effectively, exceptional results can be achieved.

A technical knowledge to analyse project risks
The Development Monitor’s knowledge must therefore combine an in-depth understanding of the investor’s business plan, risk tolerances and procedures with practical sector experience of design, procurement and construction. Development Managers must though be able to apply this experience and knowledge to the specific project. A ‘One size fits all’ approach rarely works and compromise is often needed.

Understanding and balancing objectives
So, purely commercial and technical knowledge is not enough to successfully fulfil the modern Development Monitor role. What’s needed is the ability to understand and balance the different commercial parameters of each party, coupled with the relationship skills needed to ensure the team deliver on the funder’s business plan.

by Edward Moore, Partner (Building Consultancy)