Forward funding isn’t for everyone – but when it works, it transforms businesses.
You’ve probably heard about this financing approach at events or seen it mentioned in property publications. Yet understanding who actually uses forward funding and why they choose it remains something of a mystery for many.
The truth is, this financing model has moved from a niche tool to a mainstream strategy that’s reshaping how major UK property projects get built.
From pension funds deploying billions to ambitious developers scaling their operations, a specific ecosystem has emerged around these arrangements.
If you’re a developer wondering whether this approach might suit your next project, or an investor exploring the space, knowing who’s already succeeding can help you determine whether you fit the profile.
The Money Behind the Movement
When you look at major forward funding deals making headlines, it’s institutional investors who dominate the funding side.
These aren’t your average property investors – we’re talking about organisations managing billions in assets who view this financing model as a strategic weapon for portfolio growth.
Pension Funds Lead the Charge
Pension funds have grown to become the dominant force.
The Greater Manchester Pension Fund and West Yorkshire Pension Fund have become household names in development circles, backing major residential schemes across the country.
Global asset managers have joined the party too. You’ll find Legal & General, Aberdeen Standard, and Barings competing for the best opportunities.
What draws them in? The ability to secure a pipeline of future assets before they hit the open market.
Think about it from their perspective.
When you’re managing a £50 billion portfolio, buying completed buildings means competing with everyone else at auction or through agents. This approach lets you step in earlier, secure better pricing, and influence the final product to match your exact requirements.
Scale and Control
These investors regularly deploy £10 million minimum on individual deals, with some reaching £100 million plus. They’re not looking for quick flips, they want fit for purpose assets that’ll generate stable income for decades.
What really attracts institutional money is control.
Forward funding deals mean that the investor can have some control and input over the build.
Through these arrangements, they can insist on solar panels, EV charging points, and energy-efficient systems from day one. This isn’t just about being green, it’s about future-proofing their investments against changing regulations and tenant expectations.
Developers Who’ve Cracked the Code
The developers who gravitate toward this financing model share common characteristics, though they come from different backgrounds.
Some are regional players ready to scale up, others are experienced hands looking to take on bigger projects without stretching their balance sheets too thin.
The appeal for developers goes beyond just accessing more money.
When you sell a site to a forward funder early in the process, you immediately improve your cash flow. That capital can fund your next land purchase or cover carrying costs on multiple projects.
Risk sharing changes the game too. Traditional development means you carry all the market risk – if house prices fall during construction, you absorb the loss.
Forward funded arrangements spread that risk with your investor partner, who’s committed to buying at a predetermined price regardless of market shifts.
There are some compromises
You’ll share profits with your funding partner and have less control over final specifications. Some developers can struggle with this initially.
But for growth-minded developers, these compromises make sense.
James Crawford, who’s built student accommodation across three cities using this model, puts it simply: “I’d rather have 60% of ten projects than 100% of three.”
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Project Types
Not all property projects attract this type of funding and certain sectors have become clear favourites among institutional investors, each for different reasons that reveal what makes this financing model tick.
Build-to-Rent
Build-to-Rent (BTR) developments dominate the landscape.
With over 127,000 operational BTR homes across the UK and growing demand for rental properties, these projects offer institutions exactly what they’re seeking: predictable, long-term income streams.
The fundamentals work perfectly for both sides.
Developers get upfront capital to build large-scale rental schemes, while investors secure professionally managed assets in markets with proven rental demand. Manchester alone has seen BTR account for nearly 25% of private rental stock, showing how quickly this sector has matured.
Student Housing
Student accommodation represents another sweet spot.
Universities provide built-in demand, and academic calendars create predictable occupancy patterns that institutional investors can model accurately.
The complexity of developing and operating student housing also means developers benefit significantly from institutional partners who understand the sector.
Purpose-built student accommodation isn’t just about building bedrooms anymore.
Modern schemes integrate social spaces, study areas, and technology that requires substantial upfront investment. These arrangements allow developers to create premium products while sharing the risk with partners who appreciate the long-term value.
Related more: PBSA Development Finance
Commercial Pre-lets
Commercial pre-let developments form the third major category.
When a strong tenant commits to occupying a building before construction starts, forward funders can plan for guaranteed income from day one.
These deals often involve bespoke specifications that suit the model perfectly – the investor can influence design details to ensure the building meets both tenant needs and their own investment criteria.
Office developments with tech companies, industrial units for logistics operators, and healthcare facilities all attract this funding when they come with solid pre-let agreements.
The key is covenant strength, investors want tenants who’ll pay rent reliably for years.
Project scale is important and you’ll rarely see these arrangements on schemes worth less than £5 million, and most institutional investors prefer deals starting at £10 million plus.
The due diligence and legal costs of setting up these partnerships need significant projects to justify the effort.
Market Forces
Several powerful trends are driving this financing model’s popularity, creating opportunities that didn’t exist a decade ago.
Housing Crisis
Housing shortage remains the fundamental driver.
With government targets of 300,000 homes annually and planning constraints limiting supply, institutional investors see clear, continued long-term demand for rental properties.
These arrangements help them capture this opportunity while supporting developers who struggle to access traditional finance for large schemes.
Pension funds face a particular challenge – they need assets that generate inflation-linked income over decades to match their liability profiles.
Forward funded deals let them secure these assets at the development stage, often achieving better yields than buying completed buildings.
International Money
International investors have discovered UK property’s relative stability post-Brexit. These arrangements provide a structured way to deploy capital while partnering with local expertise, reducing their risk in unfamiliar markets.
More recently ESG requirements are reshaping investment strategies.
New buildings can incorporate sustainability features from the start, helping institutions meet environmental targets while avoiding costly retrofits later.
Market Maturity
The sector has matured significantly over the past five years.
Better understanding of construction and occupancy risks, improved documentation standards, and growing track records have all contributed to increased institutional confidence in these arrangements.
What Makes Success Possible
Success in this space requires specific capabilities from both investors and developers, plus favourable market conditions.
Investors
Investors need strong due diligence teams who understand construction risks, plus patient capital that can wait for projects to complete.
The ability to influence design and specification from early stages attracts many institutional players, but they must have the expertise to make good decisions.
Risk management capabilities are essential as construction delays, cost overruns, and market shifts can all impact returns. The most successful large investors have developed sophisticated approaches to assessing and mitigating these risks.
Developers
Property developers must demonstrate a successful proven track record and professional teams.
Scale matters here – your project needs to justify institutional involvement. Flexibility around profit sharing and specification control will often determine whether deals get done.
Developers who understand their local markets, have good relationships with contractors, and can demonstrate clear demand for their proposed schemes find it much easier to attract funding partners.
The Future Looks Bright
Forward funding continues evolving as both major investors and developers gain experience and success with the model.
Documentation is becoming more standardised, making deals quicker to arrange. Risk management techniques are improving, giving both sides more confidence.
New sectors are opening up too.
Healthcare facilities, later living schemes, and even industrial developments are attracting institutional interest through these arrangements.
If you’re considering this approach for your next project, understanding these key players and their motivations provides the foundation for success.
The ecosystem is there, the appetite exists, and the right professional guidance can help you determine whether you fit the profile.
How to Refinance Your Unfinished Development Project
Looking to refinance your development before completion? From securing better rates to releasing equity early, there are more options available than you might think.
Professional Guidance
Forward funding deals don’t happen by accident.
Behind every successful arrangement, you’ll find experienced finance brokers who understand both sides of the equation and know how to bring the right parties together.
Access That Money Can’t Buy
The forward funding market operates largely through relationships.
Institutional investors don’t advertise their appetite for new deals in the property press. Pension fund managers don’t take cold calls from developers they’ve never heard of.
This creates a closed loop that’s difficult to penetrate without the right connections.
Specialist brokers maintain active relationships with hundreds of funding sources, from global asset managers to private wealth funds.
These aren’t just names in a database – they’re working partnerships built over years of successful deals. When a pension fund has £50 million to deploy, they call their trusted brokers first.
For developers, this access is invaluable.
Instead of spending months trying to identify potential funders and figure out their investment criteria, you can tap into established networks immediately. The broker already knows which investors are actively seeking your type of project and what terms they’re likely to accept.
Deal Structuring
Forward funding arrangements involve complex moving parts that must align perfectly for deals to work.
Get the structure wrong, and even the best projects can fail to attract funding or, worse, create problems down the line.
Experienced debt advisory consultants understand how to structure deals that work for both sides.
They know when to suggest staged payment mechanisms versus lump sum approaches. They understand which investors prefer development management arrangements and which want hands-off partnerships.
Most importantly, they can spot potential issues before they derail negotiations.
Take profit sharing arrangements, for example. A developer might instinctively want to maximise their percentage, but skilled brokers know that slightly more generous terms often attract better funding partners who bring valuable expertise and smoother processes. The small reduction in profit share gets more than offset by reduced risk and faster execution.
Market Intelligence
Forward funding markets move quickly.
Investor appetites shift based on economic conditions, regulatory changes, and portfolio requirements.
New funding sources emerge while others withdraw from active investment. Staying current with these changes requires constant market engagement.
Professional brokers monitor these shifts through direct contact with funding sources.
They know which pension funds have just received new mandates for property investment, which asset managers are struggling to deploy capital, and which sectors are becoming more or less attractive to institutional investors.
When a major investor suddenly decides to focus on student accommodation after years of avoiding the sector, brokers can quickly identify developers with suitable projects and facilitate introductions.
Forward funding markets sometimes offer brief windows of particularly attractive terms when investor demand exceeds available opportunities.
Developers working with connected brokers can capitalise on these conditions, while those going it alone often miss the opportunity entirely.
To speak with a specialist broker, please call us on 020 3951 2828.
FAQ
Institutional investors like pension funds and asset managers provide the capital, while experienced property developers use these arrangements to scale their operations. The model works best for developers with proven track records working on projects worth £5 million or more.
Pension funds prefer forward funding because they can secure higher initial yields, influence the building’s design to meet ESG requirements, and avoid competing with other buyers for completed assets. They also get inflation-linked income streams that match their long-term liabilities, while minimising their Stamp Duty liability.
Read more: Forward Funding Tax Advantages
Most forward funding deals involve projects worth £10 million or more, though some arrangements start at £5 million. The due diligence and legal costs mean smaller projects rarely justify the institutional involvement required.
Build-to-rent developments, purpose-built student accommodation, and commercial pre-let projects dominate forward funding. These sectors offer predictable income streams and strong market fundamentals that institutional investors value.
Smaller developers can access forward funding if they have strong projects and professional teams, but they’ll need schemes worth at least £5 million. Partnering with experienced development managers sometimes helps smaller players enter this market.
Specialist finance brokers with institutional networks provide the best access to forward funders. They understand investor requirements, can present projects effectively, and negotiate favourable terms for developers.
Forward funding provides upfront capital without loan applications, shares construction risks, and offers tax advantages. Normal development finance gives developers more control but requires personal guarantees and full risk exposure.
In forward funding deals, SDLT is calculated on the bare land value at the time of purchase, not on the completed development value. This creates significant tax savings compared to buying a finished property, where SDLT would apply to the full market value including the constructed buildings.
Read more: Forward Funding Tax Advantages
