Structure
Forward purchase
Forward purchase is a structure in which an investor contracts to buy a completed development at a fixed price on practical completion, while the developer funds construction, transferring less risk to the investor than a forward funding.
Forward purchase is a structure in which an investor contracts to buy a completed development at a fixed price, or on an agreed formula, on practical completion, while the developer funds construction in the meantime. It sits at the lower-risk end of the spectrum of forward structures, because the investor commits its capital and takes title only when the building is finished and, usually, let. For a developer, it locks in an exit without surrendering the construction phase to a funder.
The structure is close cousin to forward funding, and the two are frequently weighed against each other on the same scheme. The essential difference is who carries the construction cash flow and the development risk. This page sets out how forward purchase works, how it is priced, and where it fits.
How a forward purchase works
A forward purchase begins with a binding agreement to acquire the completed asset, and it completes only when the building reaches practical completion and satisfies the conditions in the contract. Unlike a forward funding, there is no transfer of land at golden brick and no drawdown of construction cost by the investor.
The developer and investor agree the price, or the pricing mechanism, and the conditions to completion. Those conditions typically include practical completion to an agreed specification, satisfaction of any pre-let, and a longstop date beyond which the investor may withdraw or renegotiate. The developer then funds and delivers the scheme itself, usually with senior development finance, and the investor completes the purchase and pays the price once the conditions are met. From the investor’s perspective it is a purchase of a finished building, agreed in advance; from the developer’s, it is a pre-sold exit that removes open-market sales risk.
Pricing and the risk trade-off
Forward purchase is priced at a softer yield to the investor than a forward funding of the same asset, because the investor takes less risk and commits later. The developer accepts the cost and interest of funding construction in exchange for retaining more of the development margin.
The pricing can be fixed, a single agreed capital sum, or formulaic, where the price is set by capitalising the actual rent achieved at an agreed yield, sometimes within a collar. A fixed price gives both sides certainty but places letting risk on whichever party the contract allocates it to; a rent-based formula shares the outcome of the letting. Because the developer is funding the build, the developer also carries the interest cost that a forward funding would avoid, and this is the real economic difference between the two routes.
| Feature | Forward purchase | Forward funding |
|---|---|---|
| Who funds construction | Developer | Investor |
| When investor commits capital | Practical completion | Golden brick |
| Title transfer | On completion | At golden brick |
| Investor risk | Lower | Higher |
| Yield to investor | Softer | Keener |
| Interest cost during build | Borne by developer | Avoided |
| Profit retained by developer | Higher | Lower |
Legal structure and conditions
A forward purchase turns on the sale contract and its conditions, rather than on a development agreement that governs funding. The contract defines the specification, the pre-let requirement, the longstop date and the remedies if the building is late or not delivered to standard.
Because the investor is not funding the works, it does not take the same step-in rights or drawdown controls as in a forward funding, but it will still require collateral warranties from the contractor and professional team, so that it inherits enforceable design and workmanship obligations on completion. The pre-let documentation, where the scheme is let, is central, since the income secured by the agreement for lease underpins the price. The developer’s own senior facility sits alongside all of this, and the interaction between the development lender’s security and the investor’s purchase contract needs careful structuring so that the purchase can complete cleanly.
Where forward purchase fits
Forward purchase suits well-capitalised developers who can fund construction and want to retain more of the profit, on schemes where an exit needs to be secured but the developer does not need the funder’s balance sheet during the build. It is common in sectors with deep investor demand and readily available development finance, such as logistics, Build to Rent and student accommodation.
The choice between forward purchase and forward funding is one of the most consequential a developer makes on an income-led scheme, and it turns on balance sheet, risk appetite and the cost of construction funding. The comparison page sets the two side by side in detail, and the anchor guide to forward funding covers the higher-risk, keener-priced alternative. If you are weighing the two on a live scheme, tell us the numbers and we will model both.
Questions
Frequently asked questions
What is a forward purchase in property?
A forward purchase is a contract under which an investor agrees to buy a completed building at an agreed price, or on an agreed pricing formula, with completion conditional on practical completion and, usually, on the scheme being let. The developer funds construction in the meantime, so the investor's capital is not committed until the asset is finished.
What is the difference between forward purchase and forward commitment?
The terms are often used interchangeably. Forward commitment tends to describe the investor's binding agreement to acquire on completion, while forward purchase describes the transaction as a whole. Both sit at the lower-risk end of the forward structures spectrum because the investor does not fund construction and does not take title until the building is complete.
Who funds construction in a forward purchase?
The developer funds construction in a forward purchase, typically using senior development finance and its own equity, and is repaid when the investor completes the purchase on practical completion. This is the defining difference from forward funding, where the investor funds the build in staged drawdowns.
Is a forward purchase priced better than a forward funding?
For the investor, a forward purchase usually prices at a slightly softer yield than a forward funding of the same asset, because the investor takes less risk and commits its capital later. For the developer, the trade-off is that it carries the construction cost, the interest and the completion risk itself, in exchange for retaining more of the profit if the scheme delivers.
When would a developer choose forward purchase over forward funding?
A developer chooses forward purchase when it has the balance sheet and appetite to fund construction, wants to retain more upside, and values locking in an exit without giving up the development margin that a funder would price in. It suits well-capitalised developers and schemes where development finance is readily available on sensible terms.
What are the main risks of a forward purchase for the developer?
The developer carries construction cost overruns, interest cost, and the risk that the scheme is not delivered to the condition or by the longstop date the contract requires, which can allow the investor to walk away or reprice. Because the developer funds the build, it also carries refinancing risk if development finance needs to be extended before the purchase completes.