Some golden rules of land promotion

I was invited recently to contribute to a strategic land seminar and to offer a view on the Government’s planning reform agenda in the context of my past experience out on the frontline of this sector (as opposed to now being up in an ivory tower working to shape said reform agenda...).

For the most part of the early stage of my career I was a ‘jack of all trades’ (master of none...) planning consultant in ‘multi-disciplinary environments’ and through honest endeavour worked my way to Associate status. To secure further promotion though hung upon an ability to generate fees oneself, which my lack of both a specialism and a client base was a barrier to so doing.

It was at Savills that I spotted an opportunity to carve out a niche for myself by working with the strategic land agents. I would attend pitches with them and talk landowners through the pedigree of their site and the likely planning strategy for bringing it forward. If my colleagues secured the instruction to solicit a promotion partner, I would seek a fee from the landowner to make representations and lay some groundwork during the 12 to 18 months that it took the agents to find said partner, with a view, all being well, to being retained to lead on the onward promotion work.

As it transpired I was not at Savills long enough to make a push for promotion to Associate Director because one of the people that we did a deal with invited me to join him in a new strategic land venture and so I went ‘client-side’. After a couple more of the twists and turns that had led me to Savills I subsequently joined Barratt. I spent eight years there as a Regional Strategic Land Director (the longest I have been anywhere so far...) and the early part of my tenure, when I got to meet landowners, do deals, put project teams together, and secure draft allocations, was the most enjoyable of my career to that point.

Whilst on the train to that strategic land seminar I noted down some ‘golden rules of land promotion’, and having done so thought that I would write them up in blog form. This is mostly for posterity, but they may be of interest to anybody entering the sector now. Strat land people, like gamblers, only tell you when they win and you cannot win them all, but strat land is not a gamble (a hit rate of two wins out of three is passable and three wins out of four is very good). It is part art and part science and these top tips are my distillation of both. They might help young strat land professionals to maximise their successes and minimise losses. Further, they might demystify ‘the dark art’ for both immediate land types that have never dabbled in it and the accountants that have to sanction the spending. They might too offer some insight for the wider planning profession in to how the wonderful world of strategic land promotion works.

Rule 1.Good sites in good locations.

In this regard, land promotion is very much not rocket science. Is the site on the edge of a major conurbation? If not, is the site on the edge of a settlement that is defined as sustainable in a local plan hierarchy? Is the site adjacent to a railway station in a lower tier settlement within a hierarchy that could be raised up the hierarchy if the case can be made for major mixed-use development there? Is the site a major brownfield opportunity that whilst arguably not sustainable now could be made sustainable in the future?

You do not necessarily need to be a planner to get a sense of what constitutes a good site in a good site location and good sites in good locations tend to get there in the end.

Rule 2. What’s the story?

You do though need to be a planner to tell the story as to why your particular site should be allocated.

What is the local authority’s housing requirement?

Is this the most sustainable settlement in the local authority?

Is this the most sustainable site on the edge of the settlement?

These questions are fundamental to the financial terms to be offered the landowner.

What is the local authority’s land supply position?

How old is the local plan and how far away is the new one?

What else might be relevant to future chances of success? Does a Combined Authority have a transport strategy that might include a bypass around a town or the reopening of a new station? Is the Government of the day commitment to a next generation of garden settlements? Who might support this project and who is likely to object to it?

These questions are fundamental to length of contract to be offered a landowner.

The key point is that these questions need asking from the very outset. A good strat land person is using them to inform their site search strategy, but, if not, they should be known if the landowner entertains a meeting in response to a letter of interest or a more formal short-listing interview because turning up armed with this information maximises the chances of impressing the landowner (and / or their agent).

Further, if that material is known, then it underpins not only the land bid, but the board pack (or similar sign-off / approval process if the bid is successful) and whatever form of initial contact is made with the local authority.

The entire undertaking must be built on firm, credible foundations.

Rule 3. A good land bid.

Regardless of how fancy the land bid document looks and how detailed the planning strategy (and the document should be fancy and the planning strategy should be detailed), the landowner (and / or their agent) will turn straight to the headline terms of the offer. Whether an option agreement typically favoured by builders or a promotion agreement typically favoured by promoters (or a hybrid of the two), a bid has three principal components.

I based an option / promotion fee on whether I knew the answers to the three questions about the local authority’s housing requirement; the sustainability of the settlement; and the credentials of the site relative to others also likely to be competing for an allocation. If I did,  if I could be almost certain of an allocation in the shorter term and as close to being absolutely certain of an allocation at some point, I could sanction a market-leading fee. I remember making the case for a £100,000 fee early in my Barratt days, then £200,000 and now, I suspect, a much, much higher fee is required to lead the pack. If an allocation was only likely, if answers to only one or two of those three questions were known, then I would come down from the market-leading fee proportionally.

The second component of the offer is the discount to market value that an option holder (builder) receives as a function of taking on the risk of promotion, or the fee that a promoter receives for so doing when they sell a site to a builder on the landowner’s behalf.

My discounts were based on what I called a ‘risk:reward ratio’. For example, if a site merited a higher option fee, such that it’s credentials were commensurately high, I might seek a risk:reward ratio of 3, which meant adding up option fees, legal fees and planning fees, perhaps a total of £600,000 and working out what discount from open land value would be required for a return of £1.8m. In areas of high land values, that discount would be a lower percentage. In areas of lower land values, that discount would be a higher percentage. For sites with less providence, I might seek a risk:reward ratio of 5, which would mean a discount equivalent to £3m.

In the here and now, so I am led to believe, with a paucity of sites with consent available on the immediate land market, local plan coverage steadfastly poor and Grey Belt thrown into the mix, 100% option agreements for sites that are practically a shoe-in (i.e. no discount) have made a return.

Two points are worth making at this juncture. Firstly, if planning costs rise at a rate over and above greenfield land values then those risk:reward ratios, however one chooses to calibrate them, become harder to achieve and the investors in land will start to ask themselves whether that money might not be better invested in something else. With land promotion often too risky for builders and too costly for landowners who then will take it on? Secondly, most landowners are not, in my experience, motivated sellers. The introduction of Grey Belt might herald the best opportunity to promote certain sites for a generation, but if a landowner measures time in not one generation but multiple generations they may still be disinclined to entertain an offer regardless of the terms being offered.

The third component of a land bid is the timeframe of the proposed contract. Ideally that would be long enough for two bites at the cherry, so an application ahead of a local plan (if the plan was some time off) and then attempts at a draft allocation if the application was unsuccessful, or an attempt at a draft allocation (if the plan was close at hand) and, if not successful, a planning application when the adopted plan started to date. Of course, the longer the agreement the greater the security for the promoter, but the less likely a landowner is to accept it.

Rule 4. Trust.

Navigating all of that, as you know if you have tried and as you might get a sense of if you have not, is incredibly difficult, and it helps in my experience to be able to do so in a spirt of mutual endeavour. A promoter is fundamentally inviting somebody, whether a farmer, a scrap metal dealer or the land agent for Lord & Lady Suchandsuch, to entrust to them their most prized and most lucrative asset and they are not likely to do so to just anybody. The best land deal I did at Barratt was based upon me telling a landowner that he should disregard all other overtures to make an immediate planning application and bind his time.

Rule 5. Good deals not just deals.

If you are the accountant responsible for the money to be invested in a strategic land project it is worth remembering that strat land managers are often bonused for doing deals rather than for doing good deals. Either then bonuses should be payable when deals have been proved to be good or you should be confident in a check and a balance against the strat land managers' likely optimism bias before a contract is exchanged.

Rule 6. Always be promoting.

‘Always be closing’ was the philosophy advocated by Alec Baldwin’s character in Glengarry Glenross and the strat land equivalent is ‘always be promoting’. Alternatively, ‘land does not allocate itself’, as my former Barratt colleague Philip Barnes used to wisely espouse. A land promotion strategy based solely on responding to local plan consultations is less likely to succeed than one based upon identifying from the very outset who is likely to want to see the project succeed and who is likely to want to see it fail.

Suffice to say that the biggest supporters of a project might be those people on the other side of the town who would rather development happen on your site than the one behind their house…

Suffice also to say that some people will object to a project regardless, but I always found that if you did not try to persuade them, and simply invited them to object on the basis of fact rather than hearsay, then the process might be a little (only a little…) less rancorous.

The online age is often bemoaned for the pace and scale at which objections to proposals can escalate, but it also affords opportunities to counteract such forces if promoters are prepared to put the time into doing so.

Rule 7. Always be communicating.

Often land contracts include obligations to keep landowners (and / or their agents) up to date, but I would be in contact with them weekly or monthly or as and when anything happened that I felt that they needed to know about. It can be an uncomfortable for landowners to have their sites promoted whilst still living in the area so keeping them abreast, and letting them keep you abreast of local gossip, is mutually beneficial.

Further, a land contract cannot account for every possible turn of events during it’s lifetime and landowners are more likely to be amenable to making amendments the more constructive your relationship with them is.

It is not just the landowners with whom communication needs to be maintained though. There is always a reason to check in with planning officers and local councillors.

Rule 8. Spend money in the right way at the right time.

Spending money in the right way means appointing the best project team possible.

Spending money at the right time is recognition that, broadly speaking, there is a base level of spend that is appropriate to satisfy oneself that there are no gremlins on a site at the point at which a contract is entered into; then a base level of spend to demonstrate a deliverable vision for a site to the local authority (typically the platform to secure a draft allocation) and then the spend required to secure a planning permission.

That initial spend is at entirely at risk until the site is secured, the second tranche is that spent at risk if an allocation is not secured and the site is jettisoned, and the third tranche is effectively de-risked from the point of draft allocation.

The balance (and the skill) is obviously between that to be spent on the best chance of securing a draft allocation and that which is potentially abortive, but as a general rule of thumb spend can increase as risk decreases.

Rule 9. Strategy reviews.

It would be astounding if, given the fast-paced, ever-changing, rock and roll world of town and country planning, the strategy presented to a landowner (and / or their agent) at the outset was the strategy ultimately used to secure planning permission. How could it be? Consider some of the very many variables. Changes in personnel within the local authority, political change within the local authority, local plans commencing, local plans pausing, local plans collapsing, new Governments, new Mayors, holding directions from statutory consultees, and so on, and so on, and so on. Land promotion is like a game of snakes of ladders where there are few ladders and new snakes can be added to the board at any given point in time.

The perfect point at which to execute the perfect strategy does not exist. Keep calm and make the best decision possible based upon the most information available. Whether you were right to plough on or right to call it quits will only become apparent in the fullness of time, but if you made the right call for the right reasons then you cannot be wrong.

So there you have it. Some golden rules of land promotion. These are not meant to be exhaustive (and I could have written so much more about those that I have identified), some will apply more than others at any given point and on any given site, and you may have some others of your own (do please let me know if so), but they have been interesting to read nonetheless I hope.

I did happen to catch up with a few former colleagues not so long ago (at the Barratt Central Region Land Forum that I used to help to organise) and it does sound as if I am being proved to have been more right than wrong. Have a go yourself though if you have not already. It is almost as much fun as swanning around in Westminster…