Investing basics
Table of contentsThere’s something powerful about being part of the beginning, of watching a city rise, a block transform, or a vision take shape from the ground up.
Development funds let investors do exactly that.
While most people are familiar with buying into finished buildings that generate rental income, development funds offer something different: the opportunity to invest in the creation of real estate before it even exists.
And with places like Riyadh undergoing massive urban transformations, the timing couldn’t be more important.
So, let’s take a closer look at what development funds are, how they work, and why they're becoming such a hot topic, especially in the Middle East.
What Is a Development Fund?
A development fund is a pool of capital raised from investors, retail, qualified, or institutional, to finance the construction or large-scale redevelopment of real estate projects.
The goal? To create value through development and exit the investment once the asset is complete, typically by selling it to another buyer or refinancing it into an income-producing structure.
🔹 Fund term: typically between 3 to 5 years
🔹 Returns: Projected at 15 to 20 percent internal rate of return (IRR)*
🔹 Income: None during the build phase (all returns come at the end)
*IRR, or internal rate of return, is a measure of how much your investment earns over time, including all the stages from capital deployment to project exit.
How Do Development Funds Work?
Once a development fund secures investors, it starts deploying capital in defined phases
Here’s how it usually flows:
- Capital raising
- Investment phase ( land acquisition, planning approvals, contractor selection, architectural design, on-site development…)
- Completion and exit
Unlike income funds that start distributing rent from day one, development funds hold off on payouts until the project is completed and sold.
That’s why timing, location, and a strong exit plan matter so much in this strategy.
A Quick Comparison: Core, Value Add, and Development Funds
To understand development funds, it helps to place them on a spectrum of real estate strategies:
According to INREV, development funds are popular among experienced investors seeking growth strategies that align with market cycles and capital appreciation goals.
In fact, a 2023 global survey by INREV found that 39% of institutional investors planned to increase their allocation to development funds, particularly in mixed-use and logistics sectors, viewing them as a hedge against inflation and a vehicle for portfolio diversification.
Sources: INREV Investor Intentions Survey 2023, Strategy Returns Report
What Is a Mixed-Use Development Fund?
Now, let’s connect the dots. Many development funds today focus on mixed-use projects—real estate projects combining different types of assets into a single development.
A single mixed-use complex might include:
- Retail and shopping zones
- Offices or co-working spaces
- Residential apartments
- Hotels or serviced accommodation
- Public plazas or leisure spaces
Why mix it all together?
Because it brings diversification. Instead of relying on one income stream (like hotel bookings), the project benefits from foot traffic, office leasing, and retail spending. And that makes it more resilient and often, more attractive to buyers at the exit.
Why Now? Saudi Arabia Is Building at Full Speed
You can’t talk about development today without talking about Saudi Arabia.
The Kingdom is undergoing a once-in-a-generation transformation, investing over $1.3 trillion in real estate and infrastructure as part of its Vision 2030 strategy.
And it’s doing that through regulated, Sharia-compliant development funds that are now more accessible than ever. Thanks to regulatory shifts led by the Capital Market Authority (CMA), institutional,qualified and retail investors can now participate in large-scale development through licensed fund structures.
This shift is already reshaping the landscape. Real estate funds, both public and private, now make up 25% of all assets under management in Saudi Arabia, totaling more than 1 trillion SAR (~$267 billion), according to the CMA’s chairman (Zawya, 2025).
Here’s what that looks like in action:
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Case Study: King's Square, Riyadh
In November 2024, Al Basateen and Riyad Capital launched a real estate fund worth 2 billion SAR (533 million dollars) to finance Kings Square, a landmark mixed-use development in the capital.
The project spans over 240,000 square meters and includes 12 towers connected by landscaped courtyards.
It’s designed by global architecture firm OMA, with residential, retail, and commercial zones.
Within weeks of launching, the fund saw rapid uptake due to the following:
- Riyad Capital’s track record (20+ real estate funds under management)
- Strong institutional support and deep development pipeline
- Attractive location in a city undergoing rapid densification
Investors were drawn not only to the scale of the project but also to the credibility of the managers, as Riyad Capital manages over 89 billion SAR in assets and holds over 790 billion SAR in custody, with global exposure across North America, Europe, and the Gulf.
While exact investor returns haven’t yet been published, the fund's structure and objectives were aligned to achieve substantial returns for investors, particularly when backed by strong leasing outcomes and early planning approvals.
Source: Zawya Projects, 2024
Who Are Development Funds For?
Development funds aren’t for everyone, and that’s okay 🙂
They’re best suited for investors who:
- Are comfortable with longer timelines (no monthly payouts)
- Are seeking higher capital appreciation
- Understand the risk-reward trade-off
- Are excited by the idea of participating in real urban growth
These investors typically think in 3–5-year cycles and are aligned with the market's growth phase, not just cash flow.
Did you know? Many institutional investors use development funds as part of their barbell strategy, combining stable income-generating assets on one side with higher-growth, higher-risk projects on the other.
Final Thought: This Is Your Front-Row Seat to Progress
When you invest in a development fund, you’re not just putting your money in concrete and steel.
You’re contributing to what a city becomes. To jobs created, communities formed, and stories shaped…
So whether it’s a vibrant boulevard in Riyadh, a reimagined downtown in Jeddah, or a dynamic mixed-use hub in Dammam, development funds offer you a front-row seat to what’s next.
And in a market like Saudi Arabia, where ambition meets scale, that future isn’t just coming. It’s already being built.
