Development Exit Finance

Development exit finance enables property developers to react flexibly to changing situations, and to restructure their financial commitments to maximise profits

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Flexibility is the most important element for a successful developer. Being able to change and adapt with the market is vital if an investment project is to succeed, and in order to maintain flexibility a developer must always have one eye on their exit strategy. A developer that’s overly committed to a single project might well find themselves at the mercy of a shifting marketplace, and can easily miss out on lucrative opportunities that present themselves. Maintaining financial agility is key to staying competitive, and when developers need to move on from a project development exit finance can help them to fulfil their outstanding financial obligations.

Development exit finance is a useful tool that enables property developers to move on from a project that’s not quite complete, and helps to tie up the loose ends of their existing finances. While this can be a particularly helpful way of resolving a project that’s reached maturity, it’s not a “no-brainer” solution; as with any element of development finance, borrowers should carefully consider the implications of each financial product they take on and assess what impact it might have on their future financial position. Before committing to an exit finance package, it’s important that developers consult a qualified and experienced financial advisor, who will be able to offer impartial guidance on whether the loan terms are acceptable or not.

Who needs a development exit finance package?

On the face of it, property development seems like a straightforward industry to work in; you take a plot of land, build something on it using borrowed money, then sell it for more than it cost you to make it. In theory, this is what property development all boils down to, but in practise it often gets a bit messier than that; for instance, a large development might be partially sold, but may still have several empty spaces on the market. Equally, the property may be largely completed but still requires a few finishing touches, and until these are put in place the property cannot be sold or mortgaged.

In situations such as these, it’s not really necessary to hang on to the development finance deal which was used to help construct the property in the first place. Generally speaking, development finance consists of a large package of capital that’s used to build everything from scratch, and as such comprises a high percentage of the property’s total value. Such a large loan may well be unnecessary when the project is to all intents and purposes completed, and developers stand to benefit by consolidating their borrowing into an exit finance loan instead.

For instance, let’s consider how a development that’s reached practical maturity might be rendered more profitable through the use of exit finance. A newly-built office building might have cost £20 million to construct, which has been sourced through development finance and bridging loans over the course of the project. The building has been finished and is fully prepared to accept tenants, and while the developers have managed to find buyers for most floors, there is still some space in the building for more. This puts the developer in an awkward situation, because they can’t fully repay their loans until they’ve found buyers for the entire property. While they’ve gained most of the capital they need to pay back their creditors, they’re unable to fully repay the loan, which means they’ll be unable to meet repayments when the loan term expires.

No developer wants to be unable to repay their loans, because this gives lenders the opportunity to repossess their assets (since development finance is a secured form of lending). Instead, seeking a refinance option allows developers to retain ownership of their assets whilst also satisfying their commitments to their lenders. Development exit finance fulfils an important role here because it enables developers to quickly satisfy their creditors, and can also minimise the cost of maintaining their loan. In the example above, the owner of the office block already has most of the money they need to complete repayments, and can pay back £15m of the £20m they owe. This means that they only need to seek a £5m loan, and since this only constitutes 25% of the value of the asset the loan is secured against they can expect to obtain an affordable rate on the loan.

When is exit finance needed?

Exit finance can be used in a constructive way, as outlined above, in order to maximise the profits that can be drawn from a property. However, exit finance also provides a method through which developers can withdraw from a project that’s proving unprofitable; by using exit finance to repay their lenders, a developer can shed their involvement in a project as and when they feel it’s necessary. This may be because the project is proving unprofitable, because the developer has been presented with a better opportunity, or because their business objectives have changed. In any case, having the option to depart from a project at will through the use of exit finance is invaluable for developers because it lets them cut their losses. Without development exit finance, developers would be tied to a project until its completion for better or for worse, which can prove highly unprofitable if circumstance change during development.

Exit finance provides an alternative option for developers, and means that they aren’t forced to commit to each project until it completes. If they were, developers would be much more reluctant to take on projects, because the costs of failure are much higher; a single failed project can easily sink an otherwise-successful developer if they’re forced to stay until the bitter end. While the costs of exiting a project before completion can be high, and an exit finance loan can be expensive to maintain, it presents developers with the invaluable ability to opt out of a project, and to consolidate the costs of a project that’s dragging on.

Common Uses Of Development Finance

  • Overview

    Reliable finance is a crucial part of any successful development project, and bridging lenders offer a wide variety of attractive products in this sector.

  • Barn Conversion Finance

    Barn conversions can result in amazing properties, but require a lot of work. Specialist lenders provide vital financial backing to keep these projects on track

  • Construction Finance

    Successful completion of a property development project relies on a strong, stable source of finance from start to finish, which construction finance provides.

  • Conversion Finance

    Conversions come in all shapes and sizes, and conversion finance lenders provide the flexibility and adaptability that developers need in conversion projects.

  • Development Exit Finance

    Development exit finance enables property developers to react flexibly to changing situations, and to restructure their financial commitments to maximise profits

  • Inexperienced Developer Finance

    Inexperienced developers may well have access to lucrative opportunities, and the flexible approach of development lenders enables them to take on projects

  • Land Acquisition Finance

    Successful property development requires stable funding from the very start, and land acquisition loans are an important element of any construction project

  • Mezzanine Finance

    Mezzanine finance is an important ingredient in property development, and it enables developers to take on opportunities they’d otherwise struggle to fund

  • New Build Development Finance

    New-build projects need stable funding from start to finish, and new build development finance lenders provide the tools property developers need in this sector

  • Pre-Construction Finance

    There’s plenty of work to do before construction starts, and the costs of paving the way for a successful project must be met with pre-construction finance.

  • Property Development Finance

    Property development requires specialised financial solutions, and the UK’s development finance sector provides a variety of highly flexible funding options

  • Retail Conversion Loans

    Retail conversions can be lucrative opportunities, but developers must ensure they have appropriate funding to secure planning permissions and carry out work

  • Refurbishment Finance

    Refurbishment finance lenders provide the tools that property developers need to quickly seize and escalate renovation projects from beginning to completion

  • Self-Build Finance

    Self-build projects require a specialist touch, and there are many development lenders dedicated to providing self-build finance for precisely this purpose.

  • Site Acquisition Finance

    Moving quickly is vital for successful property development, and site acquisition finance is an indispensable part of any development finance package.

  • Unmortgageable Property Finance

    Unmortgageable property finance allow property developers to take out flexible finance solutions to refurbish and renovate properties for mortgage or resale

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