Hi All,
Working as a lone analyst at a small REPE shop in the UK and have been asked to look at creating a forward funding model for one of our schemes.
Looking into forward funding the concept is pretty basic but the variables in underwriting a deal seem to be plentiful. I was wondering has anyone any experience of modelling these deals and be willing to point me in the right direction of a template (even back of the napkin) model? I want to look at it from both the developer (me) and the forward funding partner's perspective.
I think I could take a decent stab at creating from scratch but I'm trying to limit my trial and error on this. I have a good project level model in place that I am hoping to run this forward funding model off.
Edit;I should add that this is a build to rent residential scheme with a small element of commercial.
Any help appreciated.
It's actually pretty simple assuming your model already has a monthly cash flow tab and a loan payment/amoritization schedule tab.
Start by figuring out how you want to distribute your costs across your funding period. Most models I've seen just distribute them evenly over x months of construction. I like to use the NORMDIST function in excel, since that seems to replicate a more realistic distribution. Then simply tie your accrued costs to the principal of your loan balance. Your interest/payment calcs should take care of the rest.
Great, I have all the functionalities you've mentioned above, including the NORMDIST with different levels of select-able Std Dev/Mean.
"Then simply tie your accrued costs to the principal of your loan balance. Your interest/payment calcs should take care of the rest." - Can you elaborate on this, I'm not quite understanding?
Thanks for the info!
What I meant by the second part is, you should have some sort of amortization schedule or debt tab that looks at your principal balance each month and calculates what your interest is for that month. As you draw more funds, your principal balance should increase. So let's say your distribution schedule has you drawing $100k in March. Your principal balance for March should increase by $100k.
Hello,
I have trouble understanding the concept of forward funding for development. Could anyone share a model with me?
Thanks!
I usually just treat forward funds the same way as getting 100% debt in my models
It can be pretty easily modelled as a 100% LTC loan. Your drawdown date is the transaction date when they buy the land from you + costs incurred to that point, after this all further costs are 100% funded via debt (the forward funder's payment) and at exit you receive the balance payment (agreed sale value less costs funded to that point). The forward funder's equity usually has a coupon which equates to net yield they're buying the development at.
Thank you for the answer. In the case, construction costs rise over the agreed forward funding amount what would happen then? Would the forward funding company need to pay the addition or is it up to the owner to get alternative use of capital?
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