Development management has been around for as long as there have been developers. Some property companies are specialist development managers. Others use it as part of their commercial strategy. In essence development management does exactly what the name suggests which is to manage the development rather than take on the full development risk.
The principle of development management, in its purest sense, is to offset, but not necessarily to underwrite, the risks to the owner/developer in delivering the development product. Typically, development management specialists may not be keen on taking the full developer risk or indeed the ownership risk but are happy to provide the resource and talents within their organisation to get the project to completion.
Although development managers manage the risk for the owner/ developer, they may choose to take on more risk as long as that is reflected in their fee. A pure development management role may result in a percentage fee based on construction costs, time and cost reductions or it may involve staged payment of fees based on project milestones relating to letting and final valuation.
There are many different models that have developed over the years. The bank workout programme which involves different property companies taking on development management roles in order to assist the bank in restructuring stressed and distressed property assets has highlighted a number of different approaches.
Some of the newer schemes may involve, for an appropriate level of return, taking on development risk and offering other services as part of the purchase. A more “traditional” development management model might involve the risks and offsets set out in the table below.