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What is a vertically integrated developer?

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Large construction groups commonly create vertically integrated developers.  A developer is vertically integrated when it or the company group is controlled by the same owner and the affiliated group companies are active in the various stages and in different capacities throughout the project life cycle.

A Vertically Integrated Property Developer (Example)
This illustration shows a vertically integrated developer, which is when it or the company group is controlled by the same owner and the affiliated group companies are active in the various stages and in different capacities throughout the project life cycle.

Vertically integrated developers act as the project manager and general contractor and may provide the asset, property and facility management throughout the extended property life cycle as well as market analysis, financing and investment advisory services to the project owners.  The benefits realized by the developer/owner from vertical integration are the product of a combination of professional capabilities, better information, increased flexibility, and improved bargaining power in the procurement process.  Integrated project delivery is the result.

The UBM Group offers a complete range of services in an integrated approach from a single hand: market analysis, project development, planning and project management, financing, rental and asset management.

– UBM Development, 2018

The commonly cited benefits of vertical integration are:

  • Cash flow internalization – Revenues earned from developing properties is retained within the group;
  • Combined professional capabilities – The breadth and depth of combined professional capabilities are utilized to the benefit of the developer and the company group;
  • Better information – The integration and knowledge transfer between the units in the developer company group during the project’s life cycle benefits the group as a whole and reduces risk in general;
  • Increased flexibility in project delivery – Work carried out “in-house” allows for project adjustment to changing circumstances, which affords the developer a measurable competitive advantage over “pure client” developers;
  • Increased bargaining power – The combination of professional capabilities, better information and increased flexibility improves the developer’s negotiating position towards third-party service providers and suppliers and lowers development/construction cost;
  • Improved project pipeline flow – A steady flow of projects, commonly secured by means of land bank acquisitions (land banking), ensures future business for the developer.

The UBM Group's current development pipeline has a volume of about EUR 1.8 billion. The pipleline [sic] consists of projects being realised or having a positive impact on the Group’s total output (due to Percentage of Completion Methode [sic] – IFRS 15) until the end of 2021.

– UBM Development, 2018

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