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How Much Reporting Transparency Should Investors Expect From Property Fund Managers?
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Disclosure and transparency are on the rise in commercial real estate investment. But the same factors also drive confidence in residential development.
The global commercial real estate behemoth JLL issued its Global Real Estate Transparency Index in 2014, sharing two key observations of interest to British real estate investors. One is that the United Kingdom ranks number one in transparency, followed by the U.S., Australia, New Zealand and France. Second, investors and governments are increasingly aware of the value of transparency as a means to stimulate inward investment.
The consequence of both is that many countries, primarily those in the developing world, are striving to become more like the UK. But for property fund managers - those driving the development of much-needed housing in England and Wales in particular - this emphasis on transparency is equally urgent and beneficial.
The JLL report, its eighth annual, further breaks down the drivers for transparency that, while written for the commercial side of the business, holds similar value in housing- and land-focused joint venture investments. The report’s key observations include:
Younger investors expect greater accountability - Perhaps due to the widespread use of social media, younger investors and homebuyers express a heightened demand for more information and authentic analyses.
Open source/open data - Technological advancements have come about to a certain degree due to open-source structures. This same spirit of transparency engenders greater confidence and cooperation in all forms of real estate.
Environmental concerns require greater impact disclosure - Better energy standards, the various green rating systems (BREAM, the Building Research Establishment Environmental Assessment Method, and LEED, Leadership in Energy and Environmental Design), and tools for measuring the economic performance of green initiatives, all contribute to greater confidence in new homes and the value they deliver.
Increased scrutiny by the press - Birthed somewhat from disastrous building collapses in the Third World, a greater focus on the quality of buildings and infrastructure requires that new construction be of greater quality. The green building movement, along with greater rationality in infrastructure quality and financing, is a positive outcome in UK housing as well.
Increasing trust levels - Particularly in the laggard countries where transparency is lacking, relationships between local authorities and citizens are poor. With greater transparency in UK land development, for example, planning authority decisions that are pro-development are better understood and find greater support.
Increased inflow of foreign investment - Investment in London housing by foreign nationals is at historic levels. But foreign investors also recognize the strong prospects of homebuilding in the other parts of the UK, and their confidence in our system is part of what attracts their money.
Stronger economy, increased scrutiny - With more investments to choose from in an atmosphere of improved market conditions, real estate development needs to match the transparency that characterises other investment classes.
What exactly should investors expect of alternative investment funds focused on land? They should know where the raw land is situated, how planning authorities are likely to respond to a use change petition, and why it should succeed when developed. They should know if their fund will sell developed land (i.e., with infrastructure in place) to homebuilders or to home buyers, and the time frame involved in realising the return on the investment. And while fund managers cannot predict with certainty the size of that return, they should provide a strategy for maximising it. But to be more confident about what is known and unknown in this type of investment, the investor absolutely should consult with an independent financial advisor to get an objective review.
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