“With great risk comes great reward” – Thomas Jefferson
Nowhere is it truer that risk equals reward than for subdivision. Subdividing can be profitable without doubt, but it’s nothing short of a masterclass in risk management along the way. When it comes down to it the subdivision process is just a complex multi-disciplinary project that requires careful forethought and planning at each stage. Easy!
With years of experience, let’s look at how we work with our clients to manage the key risks of subdivision.
Strategic Risk
“The person that turns over the most rocks wins the game” – Peter Lynch
Land developers work hard to maximise their realisation. This is because our capitalist society views land as a commodity. Buying land is expensive, or ‘capital intensive’. Before even beginning to subdivide a piece of land the acquisition and holding costs must be paid. This exposes a developer to market risks like economic recession, political turmoil, and natural disasters. These risks are difficult to hedge against and cannot be eliminated through diversification. The best way to hedge a land development is by increasing the yield. The more lots you have to sell, the less likely you are to be affected by real estate market volatility.
To manage this risk, we are always looking for opportunities to maximise yield for our clients.
Regulatory Risk
“If men were angels, no government would be necessary” – James Madison
The government and local councils are the guardians of our environment. We trust them to make decisions that benefit society. But this is quickly forgotten as soon as you require their approval to do something with your land. Regulation usually takes a long-term view that is often inconsistent with the exigencies of today. Because subdivision is the ultimate land use enabler it creates external risks, including for future generations. Regulators need to be convinced that their approvals will result in a better world, not just a different one. The more information you can provide to assuage these concerns, the faster the decision-making process can be.
To manage this risk, we are always looking for the answers to questions that have not yet been asked.
Operational Risk
“Management is doing things right: leadership is doing the right things” – Peter Drucker
Land developers are acutely aware that time is money. Because subdivision is a multidisciplinary endeavour it is critical that deliverables are produced efficiently. The bottom line can quickly devour profits with inefficiencies like scope creep and rework. Keeping stakeholders engaged and outcome focussed with clear and consistent communication is the best way to ensure that deliverables are timely and fit for purpose. Without this, there is a risk that deadlines will slip and a blame game begins. The complexity of a subdivision means that no one person can understand everything. The project leader needs to activate the knowledge and talent of the entire team to complete the project on time and within budget.
To manage this risk, we work with trusted stakeholders that share our values.
Summary
The prospect of subdivsion can seem daunting, but having a good team and risk management strategy in place is the best way to ensure a successful and profitable land development. Please get in touch if you would like to discuss your project – we’re always happy to get out onsite or dive into a desktop study!
