Has anyone had experience underwriting or closing a forward takeout deal recently? For example, deal I’m looking at is expect to complete construction at the end of 1Q26. Curious to know how your offers are structured and what outs you give yourself in the event the lease up falls apart or capitalize markets shift dramatically.
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Based on the most helpful WSO content, structuring a forward takeout deal for a multi-development project in lease-up requires careful consideration of both the lease-up risk and potential market shifts. Here are some key insights and strategies:
1. Structure of Forward Takeout Offers
2. Outs for Lease-Up or Market Shifts
3. Mitigating Lease-Up Risk
4. Capital Market Considerations
5. Lessons from WSO Threads
By incorporating these strategies, you can structure a forward takeout deal that balances risk and flexibility, ensuring you're prepared for potential challenges during lease-up or market shifts.
Sources: Tom Barrack: Preventing Covid-19 From Infecting the Commercial Mortgage Market, Debt and Structured Finance Brokerage Exit Opps, Life in Development - Expectations vs Reality, From Real Estate Finance to Founder of Development Company - Q&A
This when developers nut up.
Working on a value add deal rn, going to do a bridge into a perm upon completion: but my concern isn’t hitting the rents bc of the market I’m in, the risk is the construction dollars.
There’s also something to be said about having a thesis of what reality will look like upon completion — are you or the view that in 2 years rates should be lower/more favorably priced long term debt?
In terms of “outs”, the easiest step you can take is stress test the f*** out of your numbers, think like the lender, not the developer.
Don’t disagree at all on the stress test aspect, but I was thinking more contractually. I’ve seen so many of these forward takeout deals hit the market but don’t see a lot close so it leads me to believe they’re getting tied up and dropped more than were lead to believe. I’m also going to guess sponsors aren’t walking away from their earnest money either.
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