In recent years, real estate businesses and developers have started using the expression 'place-making'. Witness the large scale developments underway at Paddington and King's Cross or the proposals for development at Earls Court and Battersea Power Station, they all have one thing in common. They are more than just a series of buildings with the developers keen to create a sense of place - dynamic urban settings where people can comfortably live, relax, shop and work.

Although the expression is new, the concept is not. London, perhaps uniquely among world cities, has large estates with landowners such as Grosvenor, Howard de Walden and the Crown Estate exercising careful management over vast swathes of the capital. Over the decades, this control has enabled them to create the type of areas that the modern breed of developer is now seeking to emulate.

If we look at the history of the Grosvenor Estate, it is clear that it did not shape one of the most desirable places to live and work overnight. Mayfair and Belgravia were 'created' in the 17th and 18th centuries and can be viewed as among the earliest examples of planned communities. Grosvenor had a clear vision and a consequent strategy and continues to evolve that vision today.

In addition to managing its London estate, Grosvenor decided to take its expertise and apply it to one single large-scale development in Liverpool. It worked with Liverpool City Council on the Paradise Project, which ultimately became the award-winning Liverpool ONE - the complete regeneration of 17ha of the city centre that subsequently spawned more than 40ha of further transformative development.

Any real estate or development business that is considering a place-making scheme needs to have both a clear and consistent vision and a substantial area of contiguous land ownership.

While the developer or the landowner will put the vision in place, to succeed it has to be communicated to everyone involved whether through its construction, its letting or its ongoing management once completed. It is for this reason that knowledge of place-making is relevant not only to real estate companies or developers but also to investors, agents and banks, as well as the future occupiers or tenants.

Keeping your vision intact is probably the biggest concern and, to do this, a robust legal framework is needed or the long-term success of the scheme estates will be compromised. From a legal standpoint, the framework consists of five factors as follows.

Structure and funding

Place-making developments by their very nature are large and will require significant investment. As such, careful consideration needs to be given to the vehicle that will ultimately hold the completed asset. Such a vehicle needs to be flexible enough to:

  • appeal to a wide variety of different investors
  • cater for phased development (and funding)
  • allow easy entry into (and out of) the investment
  • permit changes in the future.

Currently the limited partnership is seen as the vehicle of choice, not least because of its tax transparent nature, allowing each investor to be taxed according to its own circumstances.

The reality of the current economic climate means that funding, both equity and debt, is becoming ever harder and more costly to secure. Consequently, it is more common today for large scale developments to be financed and constructed in phases and build programmes to extend over a number of years or even decades. The heady days of projects such as Liverpool ONE, which was funded and built in seven years, are not likely to be repeated in the near future.

This requires a considered approach to funding, which needs to be flexible enough to adapt to changing market conditions and the economic environment. A place-making developer is clearly looking to its long-term vision, but if it is clear that this vision will need to be adapted (or the development altered), the funding arrangements need to permit this.

Long-term management

Following completion of the development, a long-term management plan needs to be established, in accordance with the vision, governing:

  •  who occupies the scheme
  • how they operate and occupy space
  • how different occupiers interact
  • how public realm is used.

These controls are generally woven into the occupational leases and licences for both residential and commercial occupiers and also into the contracts agreed with managing agents. It is key that the vision is sold by the landowner to the occupiers at an early stage of negotiations to ensure that they buy into it. Occupiers need to accept the consequent controls that the landowner requires, such as limitations on use or to whom a lease could be assigned.

These may initially seem unduly harsh to an occupier used to having more flexibility. But even slight deviations can be seen as 'the thin edge of the wedge' that could erode the vision if some occupiers observe others released from similar controls.

Occupiers need to be prepared to accept service charge costs that are commensurate with a higher quality development. The landowner must demonstrate not only the value that this additional cost brings but that strict financial discipline is being brought to the levels of expenditure.

Place-making schemes should not be seen as being of interest only to the property sector. The retailers, restaurants, coffee shops and office tenants that are initially attracted to such schemes have a vested interest in ensuring that the landowners remain true to the vision. This will ensure the quality of the scheme is maintained (or even enhanced) over the years following completion.

View the landholding as a whole

Any successful place-making scheme needs to be run for the benefit of its whole. Landowners should not negotiate deals in isolation on the basis that any single deal could have serious ramifications for the scheme as a whole. A cohesive letting and tenant mix policy will assist, accompanied by universally applicable estate rules and regulations.

Aim to enhance long-term value

Well-run place-making schemes will see capital values (and rental returns) steadily increase if the vision is followed. The original quality, both in terms of appearance and type of occupier, must be maintained. Nowhere is this more important than in the public realm.

Landowners such as Grosvenor have long realised that the space between their buildings is just as important as the buildings themselves. Their occupiers expect the public realm to be managed in a proactive way and the newer place-making schemes have a strong sense of community. They want to involve the local residents and businesses in the use of the public realm and public events, street theatre and displays of artwork are actively encouraged.

Short-term profit

Landowners should not succumb to the temptation of short-term profit if this comes at a cost to the integrity of the vision. Landowners may have to settle for a lower short-term return, which could mean:

  • exercising pre-emption rights (and accepting voids) to prevent less desirable occupiers obtaining space
  • resisting the demands of large commercial occupiers more used to taking space on 'their' terms
  • taking the time to wait for the right occupier when space becomes available.

The creation of a place-making scheme is an immensely complex task. Having created a unique sense of place, it would be foolhardy to risk its success to realise a few short-term gains. The success of a place-making scheme will be measured over decades, not months, and the accompanying strategy (which will need to cover periods of economic hardship) must be explained to investors at the outset.

Residential property

Any place-making scheme is likely to include a significant amount of residential accommodation. With the seemingly never ending rise in residential values in London, developers are keen to cash in and many schemes are seeking to revise upwards the number of residences they are creating.

Successfully managing residential accommodation is an art in itself. When making decisions that affect people's homes, landowners need to keep in mind that an Englishman's home is indeed his castle. That emotional angle combined with the statutory rights of long leaseholder residential tenants (such as the right to acquire the freehold, to extend a lease, challenge the service charges or take over the management) calls for special care and expert legal advice should be taken before any problems escalate out of control.

However, provided the strategy is carefully thought through and properly implemented, there are significant advantages to the presence of residential property. The daily activities of the residents can enhance the overall feel of an area, creating an urban bustle that will be attractive to workers and visitors alike.

The new 'places' being created by modern developers and landowners in London have the potential to transform the city. However, the long-term success of these schemes can be realised only if landowners are clear on their vision and how it will be implemented and maintained over decades to come. Having a legal team that understands that from the outset is a must.

This article first appeared in the RICS Property Journal June/July Edition.