The sooner the better. This also applies to the real estate market, where forward deals are flourishing. In Austria, Vavrovsky Heine Marth Rechtsanwälte are highly regarded as legal specialists with many years of experience in these very complex transactions.
Forward deals on the rise
What used to be popular only among speculative investors has now become a more widespread practice: forward deals, i.e. the purchase or sale of real estate development projects even – and often long – before construction work has been completed. A distinction is made between forward purchase, in which the investor undertakes to buy the property after completion at an agreed price, and forward funding. Here, the investor finances the construction through staggered purchase price payments. Christian Marth, Partner at Vavrovsky Heine Marth Rechtsanwälte, knows what makes forward deals so interesting: “The real estate market is booming and pressure to invest is high. Given the shortage of supply, investors are also becoming more willing to take risks. For buyers, the opportunity to secure a property in an attractive location at an early stage is tempting under these conditions”.
Opportunities & risks
Indeed, forward deals can be interesting for all parties. While buyers have the opportunity to acquire real estate developments at an early stage, sellers benefit from more attractive financing conditions and lower utilisation risk. Ideally, this creates a win-win situation. At the same time, however, the risks for both sides increase. The period between conclusion of the contract and payment or receipt of the purchase price with transfer of rights and liabilities is considerably longer. And this is precisely the period when any real estate development is most at risk. With forward funding, investors also pre-finance without generating current income or returns. These mutual risks need to be contractually regulated, which makes contract drafting for forward deals extremely demanding.
Forward deals require special expertise
“Forward deals are being concluded at an increasingly early stage of development projects – often when it is not yet clear what is possible in terms of zoning and utilisation. The earlier the transaction, the more factors need to be taken into account, including public law, zoning and building law issues”, explains Marth. The complexity of drafting contracts for forward deals should not be underestimated and it is essential to draw up contracts carefully down to the last detail and to obtain development-related advice. “We were among the first law firms in Austria to specialise in forward deals and have been representing clients, including numerous national and international real estate funds, in this area for years. Our clients benefit on the one hand from our extensive track record of successful transactions in all asset classes and on the other hand from our broad portfolio of property and construction law services, which extends beyond transaction related services to include all other legal issues in project development”, says Marth.
Christian Marth is a partner at Vavrovsky Heine Marth Rechtsanwälte and is recommended by leading international directories of attorneys as one of the preeminent Austrian real estate law experts. He specialises in national and cross-border real estate transactions, real estate project development and issues relating to tenancy and brokerage law. He also advises national and international real estate funds. A professional networker, Mr Marth is always on the ball, even in his free time – the experienced striker is an enthusiastic and successful amateur footballer.