Crisis in gebiedsontwikkeling: pensioenfonds als panacee?: van luchtfiets naar verdienmodel

Bruggema, Timon (2011) Crisis in gebiedsontwikkeling: pensioenfonds als panacee?: van luchtfiets naar verdienmodel.

Abstract:Area development in the Netherlands is experiencing serious difficulties as a result of the financial crisis. Before the crisis, municipality, developer and investor had a positive return on investment. Currently, new developments hardly even get started. Urban development is stagnating. The traditional revenue model, existing of the subsequent activities of land development, real estate development and real estate operation, does not function any more. Municipalities in the Netherlands therefore loose an important instrument in influencing the spatial quality and adequate housing. Pension funds are also hit by the crisis. They try to meet their coverage ratios while using rigorous measures. To make sufficient earnings on their investments, they seek for investment opportunities that fit their desired risk/return profile. During the crisis, pension funds get a lot of political attention and it is often stated that Dutch pension funds should invest their capital inside the Netherlands. Through this the Dutch economy will be stimulated. It is not stated though, how this should be done. Therefore, this research aims to make recommendations to municipalities about how pension funds can be involved in area development in order to break the stagnation. Problem statement How can pension funds get involved as investors in area development to develop a new revenue model for area development? Theory This research focuses on the initiation phase of cooperation between municipality and pension fund, resulting in a joint letter of intent. In this letter of intent the most important starting points for cooperation are captured. When pension funds invest in area development, an important part of the content of this letter of intent is their conditions for a potential investment. These conditions are subjects of research. Also the success factors that influence the process of cooperation in the initiation phase are researched. Conditions for investing Pension funds have the task to provide their clients with a sufficient pension. To do this, pension funds make the total deposit of their clients grow. They do this by investing the total capital. Because of their liabilities pension funds are directed at return on their investment in the long run and with a low risk profile. The basic principle of investment theory (modern portfolio theory) is ‘synergy through diversification’. In short, this means that there is reduction of risk when total capital is invested in various asset classes; an example of this is real estate. To determine the required return on investment, the risk of an investment is compared to the average market risk (by using the capital asset pricing model). Real estate is one of the most important disciplines that add value in area development. Therefore, the factors that determine the risk of a real estate asset are formulated using literature. These factors are important for selecting a property investment and they serve as the base for the conditions for investing in area development. Success factors for cooperation in the initiation phase Van Bortel et al. (2007) state that because of its complexity, area development can only take place when various actors take joint action. Accordingly, this research describes the practice of area development as a network: “a number of actors with different goals and interests and different resources, who depend on each other for the realization of their goals” (De Bruijn & Ten Heuvelhof, 2008). The revenue model of area development describes the financial course of area development. Through cooperation, actors attempt to create and claim value in this model. This is described using negotiation theory (Yousefi et al., 2007). Using network theory, negotiation theory and area development literature (that applies these theories), success factors for the initiation phase of cooperation are formulated. These are also operationalized to be used in practice. Research Method This research is carried out at AT Osborne, a management- and consultancy agency in Baarn that solves spatial problems. The reason for choosing this agency, while conducting this research, is because it frequently advices various municipalities. This research was designed using the Business Problem Solving method of Van Aken (2007). Data collection was achieved through interviews with pension funds and developers, expert meetings with consultants of municipalities and through a case study. Conclusions Problems in area development The financial crisis catalyzes change in the practice of area development, summarized by Van Delden (2011) in the following (and confirmed by the interviews). - Drop in demand in the housing construction through strongly increased uncertainties for buyers; - Restrained attitude of financers, demanded presale percentages rise; - Appreciation of ground and property declines, book values are higher than market value; - Increasing financial and liquidity problems at, for example, municipalities and developers because of a decline in value of acquired lands, among other things. All this leads to a decline in the production of real estate, real estate investments and employment. Subsequently, housing construction and area development stagnate and movement in the housing market stops. Boudewijn and Franzen state that cooperation and thinking in terms of the whole value chain is crucial to break this stagnation (Bijsterveld et al, 2011). Through this, it is plausible to argue for the involvement of investors (and more specific: pension funds) early in the process.
Item Type:Essay (Master)
Unknown organization
Faculty:ET: Engineering Technology
Subject:85 business administration, organizational science
Programme:Construction Management and Engineering MSc (60337)
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