In real estate equity, time is not a detail, but an essential part of the investment. Unlike debt, where the return is usually agreed from the outset, in equity the investor participates in the final outcome of the project. And that outcome is built over a process that can last several years: asset acquisition, licences, financing, construction, commercialisation, delivery and liquidation.
That is why, when we analyse an equity project, it is not enough to look at the target return. It is also necessary to understand what timeframe the project needs to create value, what may happen during that period and how the real estate cycle may affect the final result.
Time as an ally… and as a cost
In equity, time can work in your favour. It makes it possible to transform land or a building, advance milestones, reduce uncertainty, sell better and capture market improvement. A development that starts off-plan does not have the same value as a completed development, with sales signed, first occupancy licence and deeds underway.
But time also has a cost. If construction is delayed, if supplies are held up, if rates rise or if sales take longer than expected, the annualised return may suffer. Sometimes, the total return remains attractive, but the IRR falls because the capital has remained invested for longer. On other occasions, the delay comes with cost overruns or lower income, and then the impact may be greater.
That is one of the keys to equity: it is not only about how much a project can earn, but how long it needs to do so and what margin it has if that timeframe is extended.
Bossa Nova: a case of thesis fulfilled despite tensions
A recent good example is Bossa Nova, a project developed in the city of Ibiza. The transaction consisted of a new-build residential development of 32 one- and two-bedroom homes, with parking spaces, storage rooms and communal areas, including a swimming pool, gym and communal garden.
The investment was made on 22 September 2023 and the final liquidation took place on 20 July 2026. The result was very close to the initial forecast: a gross return of 40.1%, compared with the estimated 41.5%, and an IRR of 13.3%, compared with the forecast 13.9%.
What is interesting about the case is not that everything went exactly as planned, but that the project absorbed several tensions without losing the thesis. The closing period went to 34 months, compared with an expected 28-32 months, and the weighted investment period was 32.5 months, compared with the estimated 30 months.
However, construction performed very well: it began in January 2024, as planned, and maintained a duration of 24 months, in line with the initial plan. The slight final deviation was due to delays in supplies and in the first occupancy licence, which postponed deeds, and to the commercialisation of the last remaining units.
When the cycle creates pressure, margin decides
Bossa Nova also shows another important idea: the cycle can put pressure on a transaction, but not all projects react in the same way. In this case, there was a significant increase in construction costs: the actual cost was 5.04 million euros, compared with the 3.87 million estimated.
In another context, such a deviation could have eroded returns very significantly. Here, however, the project had a compensating lever: the improvement in sale prices. Final income reached 11.99 million euros, compared with the 10.76 million forecast, and the average sale price rose from 6,339 €/m² to 7,067 €/m².
Commercialisation was key. The development achieved a high level of sales, with 30 of the 32 homes commercialised before completion of construction, and strong demand made it possible to sell the last units at prices above those included in the business plan. In addition, the sale of the remaining homes was boosted by furnishing them, and the income potential was reinforced with the addition of four extra storage rooms.
In other words: the project was not isolated from the cycle, but it did have the capacity to absorb it. And that capacity came from a combination of product, location, demand, execution and management.
The long term does not simply mean waiting
Sometimes the long term is interpreted as a passive attitude: investing and waiting. In real estate equity, it is exactly the opposite. The passage of time only adds value if real milestones are met during that period.
In Bossa Nova, for example, the building structure was completed within the established schedule, the mandatory summer stoppages were properly managed and the pace of construction was maintained until completion. An issue arising from Ibiza’s new archaeological regulations was also resolved favourably, allowing the development to continue without relevant impacts.
Even in the final phase, when closing was delayed by the allocation of electricity supply codes by Endesa and by the sale of the final home, a partial distribution of the premium was agreed in May so as not to unnecessarily delay the return to investors once the project had sufficient cash.
These types of decisions recall an important idea: in equity, the horizon is long, but monitoring must be constant.
What the equity investor can expect
The equity investor must assume that timeframes are estimates. A project can perform well and still be delayed by procedures, supplies, deeds or final sales. That deviation can affect the IRR, even if the total return remains reasonably aligned with the plan.
They must also understand that the result depends on several levers. Costs, sales, financing, taxation, schedule and distribution structure can push in different directions. Sometimes some compensate for others, as happened in Bossa Nova: higher construction costs, but also higher income from sales.
And, above all, they must analyse whether the project has enough margin to go through the cycle. Because the real estate cycle cannot be controlled, but a transaction can be prepared to better withstand its changes: reasonable entry, a product with demand, a solvent developer, monitored costs, adequate financing and active follow-up.
Value creation requires time
Real estate equity needs time because value creation is not immediate. It takes place as the project progresses, reduces uncertainty and turns an initial thesis into a completed and sold asset.
But the long term guarantees nothing by itself. It can be an ally if it allows for good execution, better sales and the absorption of tensions. And it can be a cost if it extends timeframes, increases expenses or erodes margin.
Bossa Nova is a good example of that logic: a project that went through cost deviations and a slight final delay, but maintained the thesis thanks to commercial performance, construction execution and closing management. In equity, that is precisely what must be examined: not only the expected return, but the project’s real capacity to reach it.
