How Development Management allows investors to optimize returns, transform existing logistics assets and improve the sustainability of their projects.
Lauris Deslex
Managing Partner
Table of Contents
The Context
The logistics real estate sector is evolving rapidly. Yield compression, the need to optimize existing assets and new sustainability requirements are forcing investors and asset managers to rethink how they structure their projects.
In this context, a model that has existed for some time is gaining increasing relevance: Development Management.
This approach makes it possible to structure real estate projects from a perspective closer to the investor, combining financial analysis, technical management and operational execution within a single strategy.
What is Development Management?
Development Management is, above all, a service.
It consists of an investor entrusting the execution of a real estate development to a specialized entity — a developer or consultancy — which structures and manages the operation on the investor’s behalf.
The first step is always to structure the transaction from a financial perspective. This means integrating all the elements of the project into an economic model: land acquisition, construction, architect and engineering costs, and the rest of the so-called soft costs.
Based on this model, revenues — such as rental income — are projected and expenses are analyzed to verify whether the project is viable.
In other words, the project is modelled from the outset to ensure its economic consistency before the investment is executed.
Two types of operations
- New Constructions
- Building Renovations
This model can be applied to two main types of projects.
The first is new development: acquiring land, developing a building and subsequently operating it as a rental asset. In this case, the financial model determines whether the operation generates the expected return.
However, in the current context, a large share of operations focuses on the transformation of existing assets.
Many logistics buildings lose competitiveness over time, either because lease agreements become outdated or because the asset no longer meets the current needs of tenants.
In these situations, the departure of a tenant often creates an opportunity to reposition the asset. The analysis then consists of assessing the investment required to improve the building and the increase in income that this improvement may generate.
This approach is particularly relevant for asset managers dealing with entire portfolios of assets. If a building manages to attract a higher-quality tenant or increase its rental level, the value of the asset automatically increases within the portfolio.
The importance of time in profitability
In any real estate investment, time is a determining factor.
The longer capital remains immobilized before generating income, the greater the negative impact on the profitability of the project.
For this reason, it is essential to optimize the period between the mobilization of investment and the moment when the asset begins to generate rental income.
Development Management allows all stages of the project — from financial structuring to construction execution — to be managed in a coordinated manner, helping to reduce timelines and improve process efficiency.
Sustainability as part of the model
La sostenibilidad es otro factor que está adquiriendo cada vez más peso en el desarrollo y la gestión de activos logísticos.
Cuando se aborda la renovación de un edificio, se abre una oportunidad para mejorar significativamente su comportamiento energético. Es habitual aprovechar estas intervenciones para reforzar el aislamiento del edificio, modernizar los sistemas de climatización o incorporar tecnologías más eficientes, como la aerotermia.
Estas mejoras permiten que edificios con categorías energéticas bajas pasen a niveles superiores, lo que también incrementa su valor dentro de las carteras inmobiliarias.
Además, la adaptación de edificios existentes responde también a una lógica ambiental cada vez más presente en el sector.
Reutilizar y mejorar activos ya construidos permite reducir el impacto asociado a nuevas construcciones y, al mismo tiempo, optimizar el uso del suelo. En muchos casos, renovar un edificio existente es una solución más eficiente tanto desde el punto de vista económico como ambiental.
New skills to manage more complex projects
The evolution of this model also requires new capabilities within teams managing real estate projects.
Development Management combines dimensions that were traditionally separated: technical, financial and legal aspects. This requires understanding how each decision within a project can affect the overall financial model of the investment.
For this reason, TOP has implemented internal training programs aimed at all company profiles, from project managers to business leaders and administrative teams.
The goal is to broaden the understanding of projects from a more integrated perspective and enable teams to move from a management approach focused solely on construction to a broader view of the full real estate investment lifecycle.
An opportunity in a more demanding market
The logistics real estate market is becoming increasingly competitive. Yields have compressed and identifying new development opportunities has become more complex than in previous cycles.
In this context, Development Management makes it possible to activate projects that might not always be viable under traditional structures.
At the same time, the sector appears to be moving toward a model in which fewer completely new buildings will be developed and more work will focus on transforming existing assets.
In this scenario, more flexible investor-oriented management models such as Development Management have significant potential to become a key tool within the European logistics real estate market.
