The previous Serviced Land fund acquired three assets at a total cost of a £11.9m. The first asset – 7.7 acres of land in Norfolk, was bought for £7.62m. A developer has offered to buy the land for £9.24m – an increase of around 20 per cent – and Cordea Savills is in the advanced stages of contract negotiations. One of the other sites has been identified by the local authority as a large scale housing site.
The new fund will target returns in excess of 15 per cent a year over a five-year period. It will follow the same strategy as the previous fund, which completed its investment programme one year ahead of schedule. The strategy involves buying big tracts of land to be split into smaller plots that are more attractive to property developers. Improvements will also be made to the plots such as obtaining planning permission – particularly if changing the use of the land from industrial or agricultural to commercial or residential – putting in drainage systems, gas, electricity and telephone lines before the plots are sold to developers at a premium.
The fund will focus on adding value to the land it buys though changing the planning use, refine planning consent, installing the infrastructure and services, which may include building roads. Cordea Savills may also make joint venture arrangements with developers where land is sold in return for agreed share of sale of the houses that are built on the land.
On a positive note for the fund, an undersupply of housing means the value of land is high, while there is a difference in price between land with planning consent and land without it.
Although this fund does not get involved in finding tenants, investing in land can be risky as there is no guarantee that the required planning permission and enhancements can be made. The fund will also be geared by up to 50 per cent, which is not substantially high, but this will still magnify any losses if performance is poor, as well as increasing returns if the portfolio performs well.