Student accommodation
Forward purchase
A forward purchase is the purchase of a building under construction, agreed before or during the works and paid almost entirely on completion. The developer funds the construction itself, and the investor secures the asset without taking on the construction risk.
Also known asforward commitment · forward sale · turnkey purchase
How it differs from forward funding
In a forward purchase the investor signs today that it will buy the building once it is finished, at a price and on terms set by the contract: specification, timetable, permits and, sometimes, a minimum occupancy on opening. It usually pays a deposit up front and the rest on handover. Until then the developer builds with its own money or a loan, and the construction risk is its own. In student accommodation, in Spain and in the United Kingdom, it appears when a developer puts up a residence already planning to sell it to a fund, with the PBSA operator often chosen before opening. It is a relative of forward funding and, in housing, of buying off-plan.
| Forward funding | Forward purchase | |
|---|---|---|
| Who pays for the works | The investor, as they progress | The developer, with its own funds or a loan |
| When the investor pays | During construction | Almost all on handover |
| Construction risk | Largely the investor's | The developer's |
| What the investor wants | A somewhat higher return for coming in early | A finished building, with no construction risk |
Worth knowing
The buyer is bound even if the market moves. If the building is worth less than agreed when the works finish, the contract still stands, and whoever wants to pull out faces a claim. That is why handover conditions (date, occupation permit, specification) are negotiated in as much detail as the amount, and why a PBSA scheme bought this way is judged, on opening, by its first occupancy rate.
Sources
Related terms
- PBSAPBSA (purpose-built student accommodation) is a student residence built or refurbished for that use and run by a private operator, with rooms or studios, shared areas and services. The term comes from the British market, and in Spain it is used mainly by investors and operators.
- Forward fundingForward funding is a way of financing a development in which the investor who will keep the building pays for the construction as it progresses, instead of buying it finished. The developer builds without looking for a loan, and the investor takes on part of the construction risk in exchange for coming in early.