Who holds the leverage: capital versus land versus permits

Why scarcity, not size, sets the terms

The basic rule: leverage sits with whichever input is hardest to substitute at that moment, in that market.

In a capital-scarce environment (like 2023 to 2024, when interest rates rose sharply and construction lending tightened across the US and Europe), landowners and permit-holders gain leverage. A developer sitting on fully entitled land can demand better terms from capital providers because entitled, shovel-ready land is rare and lenders are cautious.

In a land-scarce, capital-abundant environment (much of the 2010s, when quantitative easing kept rates low), capital chases the few available sites, and landowners can extract premium prices or negotiate for equity stakes in the eventual project rather than a simple cash sale.

In a permit-scarce environment, which describes most infill (already built-up) urban markets in Western Europe and coastal US cities, the entitlement holder wins almost regardless of capital or land conditions. This is why local developers with political relationships in cities like New York, Paris, or Milan can extract fees, joint-venture stakes, or outright project control from outside capital that has money but no path through the approval process.

Case study logic: the REIT, the family office, and the local operator

The REIT (capital-rich) wants to deploy money into a logistics park outside Barcelona. It has the balance sheet to buy land outright, but rezoning industrial land from agricultural use can take two to four years and requires navigating Spain's regional planning authorities. The REIT does not have that local expertise or those relationships.

The family office (land-rich) has owned the parcel since before it was annexed into the metro area. It has patience, no pressure to sell, and no urgency to develop. It can wait out the REIT.

The local developer (permit-rich) has spent fifteen years building relationships with the same planning officials, understands exactly which environmental studies will be required, and has a track record of getting projects approved on schedule.

The REIT needs both the other two. The family office needs the REIT's capital eventually but can wait for a better offer. The local developer needs the site and the money but supplies something neither can buy quickly: predictable regulatory passage.

Result: the local developer typically ends up with a disproportionate equity stake or development fee relative to the capital or land they contributed, because they removed the biggest source of timeline risk. This is a well-documented pattern in joint-venture structuring across US and European development deals: entitlement risk reduction commands a premium price.

The regulators and suppliers behind the scene

Power dynamics do not stop at the three headline players. Municipal planning departments, historic preservation boards, and environmental agencies (such as the US Environmental Protection Agency for contamination reviews, or local equivalents in the EU under the Environmental Impact Assessment Directive) act as gatekeepers with no capital or land exposure at all, yet they can single-handedly stall or kill a deal.

Construction material suppliers and specialty contractors also gain leverage in tight markets. During the 2021 to 2022 supply chain disruptions, lumber and steel suppliers briefly dictated project timelines more than either the capital or land side of the deal, because delayed material delivery meant delayed occupancy and delayed loan repayment.

Distributors in this sector are brokers and capital markets intermediaries (debt brokers, JV equity placement agents) who do not hold capital, land, or permits but control access and information flow between the parties that do. Their leverage comes from relationships and deal flow visibility, a different kind of scarcity: information asymmetry.

For a grounded primer on how entitlement processes actually work in US markets, the Urban Land Institute publishes accessible case studies on development approval timelines and public-private negotiation.

How value gets distributed across the chain

Margin distribution follows the leverage logic directly. In a typical US ground-up development deal:

• Landowners capture value through the land price itself, or through a "promote" (a share of profit above a return hurdle) if they roll equity into the deal instead of cashing out.
• Capital providers (equity and debt) capture a preferred return plus a share of profit, typically structured as a waterfall (a sequential distribution of cash flow, senior debt first, then preferred equity, then common equity, then profit splits).
• The entitlement holder or local operator, if distinct from the landowner, often captures a development fee (commonly cited estimate: 3 to 5 percent of total project cost in US markets, though this varies significantly by deal) plus a promote for carrying regulatory risk.

The party that removed the most risk from the deal, not the party that put in the most dollars, tends to negotiate the largest share of the upside. This is the core mechanic worth internalizing: leverage in real estate is about who absorbed which risk, priced correctly.

🎬 [VIDEO: "How Real Estate Development Works" - youtube.com/@UrbanLandInstitute - an accessible walkthrough of how land, capital, and approvals come together in a real project, useful for seeing the negotiation points in sequence]

Key Takeaways

• Power in real estate deals sits with whichever input (capital, land, or entitlements) is scarcest in that specific market and moment, not with the largest company at the table.
• Capital is the most fungible and competitive input; land is fixed and geographically scarce; entitlements are artificially scarce and politically gated, often making them the strongest leverage source in built-up urban markets.
• Regulators (planning boards, environmental agencies under laws like NEPA in the US or the EU's Environmental Impact Assessment Directive) function as unpaid but decisive players who can stall any deal regardless of capital or land strength.
• Value distribution in joint ventures typically rewards whoever absorbed the most risk, commonly the entitlement holder or local operator, through development fees and promotes rather than pure capital return.
• Reading any real estate deal starts with one question: which of the three inputs was hardest to secure here, and who controlled it?