Forward funding vs forward commitment

Forward funding and forward commitment explained

Forward funding and forward commitment are the two main ways an institutional investor buys a build-to-rent scheme before it is finished. Both give the developer a committed buyer, which removes sale risk and makes the project far easier to finance. The crucial difference is timing of the money: in forward funding the investor pays as the scheme is built, while in forward commitment the investor pays only when it is finished. That single difference changes who funds construction, who carries the risk and how the deal is priced.

These structures matter because most build-to-rent stock is bought by institutions rather than sold to individuals. Pairing a developer who can build with an investor who wants long-term income is the central transaction of the sector. UK build-to-rent investment reached about £5.3bn in 2025 (Savills), and a large share of that flowed through forward structures. We arrange both, and the right choice depends on the developer's balance sheet, the scheme and the appetite of the funder.

How forward funding works

In a forward funding deal, the investor commits at the start. The investor buys the land from the developer at the outset, or funds its purchase, and then funds the construction drawdown by drawdown, much as a development lender would, until the scheme is complete. The developer builds the scheme under a development agreement and receives a profit on cost, an agreed margin on the money spent, plus the land payment. The investor owns the asset and takes development risk through the build.

Because the investor is taking on build and lease-up risk, it expects a reward for it: a keener entry yield than it would pay for a finished, stabilised asset. For the developer, the attraction is capital efficiency. The land is paid for early and the build is funded by the investor, so the developer ties up far less of its own equity than it would using development finance, and crystallises a profit on cost without having to find a buyer at the end.

How forward commitment and forward purchase work

A forward commitment, also called a forward purchase, is a promise to buy rather than a promise to fund. The investor agrees today to buy the completed scheme at practical completion, at a fixed price or a fixed yield, but pays nothing until then. The developer must therefore fund the construction itself, almost always with development finance, and carries the full development risk, cost overruns, delays and build quality, through to completion.

For the developer, the advantage of a forward commitment over a speculative build is the guaranteed buyer: the exit is locked in, which makes development finance easier and cheaper to arrange because the lender can see exactly how the loan will be repaid. The trade-off against forward funding is that the developer funds the build and carries the risk, so it needs the equity and the borrowing capacity to do so. In return the developer keeps more of the development profit, because it is taking more of the risk.

Comparing the two structures

Set side by side, the structures sort cleanly on two questions: who funds the build, and who carries the development risk while it is being built.

Neither is better in the abstract. A developer with limited equity and a strong scheme often prefers forward funding, because it frees capital and removes risk. A well-capitalised developer confident in its delivery may prefer a forward commitment, because it keeps more of the profit. We model both and introduce the funders and lenders that suit the route chosen.

Which structure suits your scheme

The right structure depends on the developer's capital, the scheme's risk profile and the appetite of the investor market at the time. Forward funding suits developers who want to recycle equity quickly across multiple schemes and are content with a profit on cost. Forward commitment suits developers who can fund the build, want to retain more upside and have a scheme an investor is willing to commit to early. In both cases the strength of the buyer and the clarity of the agreement drive the terms, because they define how and when the developer is paid.

As an arranger we sit across both sides of this market. We can position a scheme to forward funders, arrange the development finance behind a forward commitment, and structure the agreement so the exit is robust. Because we see how funders are currently pricing risk across multifamily and single-family schemes, we can advise which route is likely to clear and on what terms. All figures are indicative and never an offer.