Office rents are rising. Office developments are scarce. Those that are in the pipeline will not be on the market until 2017 at the earliest. Development finance from traditional sources is hard come by. Mezzanine development finance is expensive. JVs are not happening with the frequency that was anticipated. How do you solve a shortage of high grade office space when there is no money? It's a catch 22. One possible solution is forward funding. Currently there are three of these types of projects ongoing in the Irish market.
Forward funding is essentially an agreement whereby an institutional investor agrees to buy a completed development before or during the construction phase. The parties will typically agree a yield at which the new building will be purchased at and the price to be paid is dependent on the rental outcome. Forward funding was popular in the UK prior to the recession and is now making a come back in both countries. Advantages of forward funding include enabling investors access to acquire premium office space with good yields, early access to projects, developers get the development finance needed without having to have pre-lets in place and it is cost effective. We are currently advising on a forward funding project here at Leman Solicitors and can help advise you through the process if this is a route you wish to explore for your future development/future investment projects.
“Construction finance which was freely available for a long period during the last cycle is much more difficult to obtain now. This has led to a slower pick up in development and generally only the most professional developers are obtaining it. "