Finance for Property Developers

Finance for Property Developers

Forward Funding

Forward Funding is a finance model where an institutional investor (for example a pension fund) contracts with a developer (either as land owner or where contract or option to purchase is held) to purchase land with planning consent and finance its construction. The investor retains ownership of the constructed asset as an investment. Commonly known as the Build to Rent Sector.

Market Sectors

  • Residential – Private Rented Sector (PRS).
  • Student Accommodation – PBSA.
  • Commercial – e.g. Hotel, Office.

Leverage

Typically 100% of the project costs.

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Structure

A variety of structures but typically including;

  • The investor purchases the land before construction commences.
  • The investor pays the developer to build the asset in stage payments.
  • The developer may take an element of profit at land sale stage, throughout the build by way of a project management fee and as a bullet payment upon completion of the build.
  • The developer will appoint a contractor and all parties will enter into a JCT fixed price contract.
  • A pre let of the asset is often required (particularly for commercial assets) at the point of purchase of the land.

Benefits to the Investor

  • Access to often scarce off market assets.
  • Investment acquired at a price below what would be paid for on market constructed asset; thus improving yield.
  • Input into design of asset and delivered as a turnkey project by developer.
  • Savings in SDLT as paid on lane value, not GDV of project.
    Pre let of asset (if applicable).
forward-funding

Benefit to Developer

  • Nil – minimal cash investment in project.
  • Project de risked as sold to investor.
  • Finance provided by investor.
  • Profits taken in stages throughout process, rather than at the end as with traditional funding of speculative property development structures.

Pricing

Bespoke and negotiable. A balance needs to be struck between the return required by the investor and the profits desired by the developer.

Construction Type

New Build, Conversion

Location

England, Wales, Scotland

Planning Consent

Full Planning Consent must be in place or consent under Permitted Development Rights (PDR).

Borrowing Entities

The land is purchased by the investor.

Security

  • The land is purchased by the investor
  • Various legal agreements relevant to this model

Project Size

Large Build to Rent projects