Investing in developments: what you are funding and when you get paid

The vehicle

Each development is held in its own LLP. The members are the investors, the scheme is the only asset, and land or property is bought with zero bank borrowing. One scheme cannot be called on to support another, and a lender cannot accelerate a sale because there is no lender.

Typically 10 to 15 members take part in a scheme, each contributing upwards of £50,000. That is a smaller group than a let syndicate carries, and each member's voice is correspondingly larger.

Who does what

Helmsley acts as development manager and runs the scheme day to day on the directions of the members. We do not hold the decision. Major decisions are taken by majority vote of the members, which includes the decisions that determine the outcome, such as whether to submit, whether to accept a consent on the terms offered, when to start on site and when to sell.

We employ independent professional advisers across planning, project delivery and legals. Their reports are made available to members, with a rationale for purchase at commencement and regular updates as the scheme progresses. The point of independence is that members are reading the planning consultant's view of the planning risk rather than ours.

There is a project management fee and a profit share, both set out at the outset of each project. Members know what we are paid and on what basis before they commit, and the profit share means our position improves with theirs at exit rather than with the length of the programme.

The stages, and where the money goes

A scheme moves through acquisition, planning, delivery and sale. Members' capital is spent in a recognisable order.

• Acquisition. Site purchase, legal fees and due diligence, drawn at the start.
• Planning. Consultants, surveys, design work and application fees, spent over a period with no certainty of the outcome. This money is spent whether consent follows or not.
• Delivery. Construction, professional fees and finance costs during the build. This is the largest call and the one most exposed to cost movement.
• Sale or letting. Agency, marketing and legal costs, deducted from the proceeds at the end.

The three risks that decide the outcome

Planning risk comes first and is the least controllable. A consent may be refused, delayed, or granted with conditions or contributions that change the appraisal. Coney Street Riverside is the honest illustration of how long that stage can run.

Build risk follows. Costs move, programmes slip, and a contractor can fail. Independent monitoring and a fixed-price contract mitigate this without removing it, and on a scheme with no bank debt a cost overrun is met by the members.

Sales risk comes last and lands hardest, because it arrives when the money has already been spent. The scheme is sold or let into whatever market exists on completion, at whatever exit yield applies then, not the one assumed at acquisition. A scheme can be delivered well and still return less than was put in.

Why this is the least liquid of the three routes

There is usually no rent to distribute while a scheme is being built, so nothing reaches members along the way. A development produces one financial event, at the end.

There is also no practical way out before then. A let syndicate holding can be offered for sale on the client portal, and there is at least the possibility of a buyer at a guide price. An interest in a development LLP part way through a build is a harder thing to transfer, and members should plan on the basis that their capital is committed until the scheme is sold.

Set against that, the members of a development vehicle take the developer's position rather than the investor's. They carry planning and build risk directly, and they hold whatever value is created by taking it. That is the trade, and it only suits capital that has no call on it for years rather than quarters.

Development vehicles are unregulated collective investment schemes, carrying no Financial Services Compensation Scheme and no Financial Ombudsman Service protection. They are available only to certified high net worth, certified sophisticated and self-certified sophisticated investors.