Explained
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ut simply, forward funding is a transaction where the investor or funder acquires a development site prior to construction Vauxhall, Greenford, Croydon and many and enters into others. These properties are likely to an agreement to fund the project up to contain far more amenity areas, such as completion. The sale, and accompanying cinemas, kitchens and even five-a-side transfer of ownership, takes place before football pitches, as a means to retain long- development of a 467-home BTR scheme the construction is finished and the price term rentals from high-income residents. in Nine Elms, London, including 30 is paid upfront, typically in instalments, Student lets are also popular in this discounted market rent and 103 affordable over the building process. At the point of space, with a recent forward funding rent homes. The project is scheduled to be completion, the buyer makes delivered by Q2 2025, with construction undertaken a final balancing payment on the value of the property, by London Square. Randeesh Sandhu, CEO and from which the value of any earlier payments is deducted. co-founder of Précis Capital, says of forward funding: “As On the advantages of this a developer, you don’t have option, Andrew Muckian, to get third-party equity. a partner at the Ireland You just have to build the branch of multinational law properties. There’s now firm Dentons, says: “For a a blurred line in this area developer, forward funding between who the developer offers significant cash flow and contractor is, because from the early site sale, you just have to manage the certainty of development build and effectively become finance for the project, In today’s environment, offering developers a development manager. and a more balanced access to capital before a brick is even laid is The BTR investor and their approach to risk than the are taking away the forward sale, where the alluring. Here, we ask industry experts to assess lenders funding risk and the pressure majority of construction risk sits with the developer.” the appeal, staying power, and the due diligence of exiting the scheme.” Rising popularity Andrew continues: “For the necessary of forward funding to ensure its Forward funding is not a investor or funder, forward new phenomenon. It has funding will likely generate continuing popularity been an option for those enhanced returns on the with a real estate portfolio investment, as it will acquire for over a decade, yet it has the development at a higher only recently been offered initial yield than would be Words by more freely. Mike Coates, a possible in a forward sale.” christopher marchant commercial finance broker at What forward funding Commercial Expert, recounts is helping to build a little of the history leading to Within the UK, forward funding agreements are centred around deal between Captima and Coventry this point. “Around 10 years ago, a forward amounting to £76m funding facility was fairly common. Lenders the build-to-rent (BTR) market, an area University likely to expand and that this finance facility for an upcoming 770-bed student were offering their preferred clients huge has already propelled, with multi-unit accommodation scheme in the city’s centre. credit lines and facilities. That stopped developments in Manchester, Stratford, Real estate development lending platform quite quickly. The market was changing; Précis Capital, with funds and accounts there were a lot more investors getting managed by Carlyle’s Global Credit involved and, essentially, it wasn’t your segment and funds managed by Apollo standard seasoned investor. These people Global Management, partnered as senior weren’t really suitable for forward funding. lenders for a £251m five-year, whole-loan forward funding facility to Moda Living. The strategy will be used to finance the
EVERYTHING YOU NEED TO KNOW ABOUT FORWARD FUNDING
46 Bridging & Commercial