This technique of the Forward Funding Contract therefore offers the developer the advantage of having directly the funds necessary to build the property, without having to borrow, mainly from bakery establishments. There is also the guarantee of having a buyer for the property. However, the use of this technique implies a lower profit (compared to the benefit of a futures contract). 2. If the company decides to clear the shares in cash or net, the company does not issue shares and, instead, the futures buyer covers the credit position by purchases on the public stock markets. If, on that date, the share price is higher than the purchase price set in the contract, the company will pay the difference to the buyer in the long term. If the share price is lower than the purchase price set in the contract, the futures buyer pays the difference to the issuer. Typically, the lender also looks for the borrower for a guarantee contract or a direct agreement to ensure that the contractual link between the lender and the developer is present. However, the lender may be satisfied with the borrower`s usual guarantees and guarantees, as well as the guarantees of the holder and the professional team. Much depends on the negotiating position of the parties, as the promoter will also endeavour to protect its position on payment and liability. For the investor, such a structuring has the advantage of not having to cover the risk of construction/insolvency of the developer, of requiring less know-how in the development of projects and the contract of sale is much simpler, while on the other hand, the rights to participate in the construction/rental phase will be less broad and the purchase price will probably be higher. The main usual documents of a forward financing transaction are: As the market shrinks and good (fully developed) real estate assets are more difficult to find, many investors – even conservative and risk-averse investors – are turning to acquiring so-called real estate developments. 1.
If the company opts for a physical settlement, it exercises the right to sell shares to the futures buyer at the contracted purchase price. The buyer at the front then uses these shares to close his credit position. In the sales contract, i.e. the seller`s risk of insolvency, the seller`s risk of insolvency must be covered (for example. B by the buyer`s cutting rights in the general enterprise contract (and, if applicable, other essential agreements), retraction rights, if possible, guaranteed by guarantees to repay payments paid so far, etc.) and mechanisms to verify (objectively) the requirements for different sales rates. SDLT is generally responsible for the consideration of land acquired under the sale and sale contract. In the case of advance financing, this may be limited to the land located in its state at the time of the closing of the sale (which means that the payment of SDLT must be only the reduced price to be paid for the state). In comparison, the conventional purchase of developed land or the forward sale of LTDS would attract the price of developed land. As sales of REIT shares are becoming more frequent for sellers to take into account the tax structuring of foreign investors, some sellers are beginning to structure their purchases in advance as advance purchases of REIT shares, resulting in additional complexity. The operation of the facility agreement (between the borrower and the lender) with the FFA (between the borrower and the developer) should be carefully considered. Most development financing loans, including the LMA model for commercial real estate development operations, are based on the fact that the borrower will also be the developer.