Development Exit Finance: Unlock Your Project’s Full Potential
In property development, effective financial management can make or break a project.
As you approach the final stages of your development, you might find yourself needing a more flexible funding solution. This is where development exit finance comes into play.
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What is Development Exit Finance?
Development exit finance is a specialised lending solution for property developers in the latter stages of their projects.
It’s a short-term funding option that replaces your existing development loan, often with more favourable terms and greater flexibility.
This type of finance is designed to provide developers with the breathing room they need to complete their projects without the pressure of looming deadlines from their original lenders.
It can be particularly useful when unexpected delays or market conditions have affected the original project timeline.
Loan Amounts and Terms
Our developer exit finance ranges from £100,000 to £25 million or more, depending on your project’s scale and the lender’s criteria. This wide range ensures that both small-scale developers and large property companies can find suitable options.
Loan terms usually span 3 to 24 months, providing ample time to sell your properties or secure long-term financing. This extended time-frame is one of the key advantages of property development exit finance, allowing developers to move away from their original exit strategy to avoid rushed sales or unfavourable market conditions.
Interest Rates and Fees
One of the most appealing aspects of development exit finance is its competitive pricing, which is often lower than standard development finance rates. This reduction in interest costs can have a substantial impact on a project’s profitability.
Arrangement fees typically range from 1% to 2% of the loan amount. While these fees are an important consideration, they’re often outweighed by the benefits of lower interest rates and increased flexibility.
Loan-to-Value (LTV) Ratios
Lenders generally offer up to 75-80% LTV, with some extending to 100% in certain circumstances. This high LTV can be particularly useful if you need to release more capital from your project to fund future developments or cover unexpected costs.
The exact LTV offered will depend on various factors, including the project’s location, the type of development, and the developer’s track record. Lenders will carefully assess these factors to determine the level of risk and the appropriate LTV ratio.
How Development Exit Finance Works
Securing development exit finance involves a straightforward process, but understanding each step will make for a smoother transition from your existing finance arrangement.
The Application Process
To begin, you’ll need to provide details about your project, including its current status, valuation, and your exit strategy. Lenders will assess this information to determine the loan terms they can offer.
The application process typically involves:
- Initial enquiry and consultation with a specialist broker
- Submission of project details and financial information
- Preliminary offer based on the information provided
- Full application and underwriting process
- Formal offer and completion
This process is often faster than securing traditional development finance, as the project is already well underway and many of the initial risks have been mitigated.
Eligibility Criteria
While criteria can vary between lenders, generally, you’ll need:
- A project that’s nearing completion (typically 90% or more complete)
- A building that is wind and watertight
- A clear exit strategy (e.g., sales or refinancing)
- A solid track record in property development (although some lenders will consider first-time developers)
It’s worth noting that development exit finance is often more accessible than traditional development finance, as the project is closer to completion and therefore represents a lower risk to the lender. This can be particularly beneficial for developers who may have struggled to secure funding earlier in the project lifecycle.
Required Documentation
Be prepared to provide:
- Proof of ID and address
- Details of your existing development loan
- Current project valuation
- Sales or letting projections
- Information on any pre-sales or reservations
Having this documentation ready can significantly speed up the application process and demonstrate your professionalism to potential lenders. It’s also helpful to have a clear business plan and financial projections to support your application.
Valuation and Risk Assessment
Lenders will conduct a thorough valuation of your project and assess the associated risks. This evaluation helps them determine the loan amount and interest rate they’re willing to offer.
The valuation will consider factors such as:
- The current state of the property market in the area
- The quality and appeal of the development
- The developer’s track record and financial stability
- The viability of the proposed exit strategy
This assessment is crucial for both the lender and the developer, as it provides a realistic view of the project’s current value and potential profitability.
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Who Should Consider Development Exit Finance?
Development exit finance can be particularly beneficial for several types of property professionals:
Property Developers Nearing Project Completion
If you’re close to finishing your project but your current finance term is ending, development exit finance can provide the additional time you need to complete and sell without undue pressure.
This can be particularly valuable in a slow market or when dealing with high-end properties that may take longer to sell.
For example, a developer working on a luxury apartment complex might find that the high-end market is moving slower than anticipated.
Development exit finance could provide the extra time needed to market the properties effectively without compromising on price.
Investors Aiming to Optimise Cash Flow
For those keen to start their next project but with capital tied up in a current development, this finance option can help release funds, keeping your business moving forward.
By refinancing at a lower rate and potentially releasing equity, you can improve your cash flow position and seize new opportunities without waiting for your current project to fully sell out.
This can be especially useful for developers who operate multiple projects simultaneously.
The ability to release capital from a nearly completed project can provide the funds needed to secure land or begin work on the next development, maintaining business momentum.
Builders Managing Time Constraints
When unexpected delays have extended your project timeline, development exit finance can offer the extra time needed to finish without incurring substantial extension fees from your original lender.
This can be a lifesaver when dealing with planning issues, supply chain disruptions, or other unforeseen circumstances that have pushed your completion date back.
For instance, a builder facing delays due to material shortages or labour issues could use finish and exit development finance to extend their loan term, avoiding costly penalties and giving them the time needed to properly complete the project.
Benefits of Development Exit Finance
Opting for development exit finance can offer several significant advantages:
Extended Sales Period
With longer loan terms, you gain the flexibility to market your properties without the pressure of an impending finance deadline. This can lead to achieving better sale prices and higher overall returns.
In a competitive market, this extra time can be invaluable. It allows you to wait for the right buyers rather than accepting lower offers out of necessity. For high-value or unique properties, this extended marketing period can be the difference between a good return and an excellent one.
Reduced Financial Pressure
By refinancing at lower rates, you can significantly decrease your monthly interest costs, easing the financial burden as you finalise your project. This reduction in outgoings can be particularly beneficial if sales are slower than expected or if you’re dealing with unexpected costs in the final stages of development.
The lower interest rates typically associated with development exit finance can also help to protect your profit margins, especially if the project has run over budget or timeline.
Potential for Lower Interest Rates
As your project nears completion, the risk to lenders decreases. This often translates to more competitive interest rates compared to your initial development finance. The reduced risk profile of a nearly completed project can result in substantial savings over the course of the loan.
These lower rates can make a significant difference to your overall project costs, potentially increasing your profit or allowing you to offer more competitive prices to potential buyers.
Capital Release for New Projects
Many development exit finance products allow you to release equity from your current project. This can provide the capital needed to secure your next opportunity without waiting for sales to complete.
For developers with a pipeline of projects, this can be a game-changer. It allows you to move quickly on new opportunities, potentially securing prime locations or negotiating better prices on land or property for your next development.
Types of Projects Suitable for Development Exit Finance
Development exit finance is versatile and can be applied to various property types:
Residential Developments
From single high-end homes to multi-unit apartment blocks, residential projects often benefit from this type of finance. The flexibility it offers can be particularly valuable in the housing market, where buyer behaviour and market conditions can be unpredictable.
For instance, a developer who has built a block of apartments might use development exit finance to allow for a phased sale of the units, rather than being pressured to sell them all immediately. This can lead to better overall returns and a more stable cash flow.
Commercial Properties
Office buildings, retail spaces, and industrial units can all be suitable for development exit finance. Commercial developments often have longer lead times for securing tenants or buyers, making the extended timeframe offered by this type of finance particularly useful.
A developer who has converted an old factory into modern office spaces, for example, might use development exit finance to allow time for fitting out the spaces to tenant specifications or to wait for the right long-term occupiers.
Mixed-Use Projects
For developments combining residential and commercial elements, development exit finance can provide the flexibility needed to market different components effectively. These projects often have complex sales or leasing processes, with different timelines for the residential and commercial elements.
Development exit finance can allow developers to manage these different timelines more effectively. For example, it could provide the time needed to sell residential units while also securing the right commercial tenants for retail spaces on the ground floor.
Development Exit Finance in Action
A developer in the Midlands found their project running over schedule as their development loan term was ending.
The original lender was unwilling to extend further.
We arranged a development exit loan that not only paid off the senior and mezzanine lenders but also released additional cash for the developer. The new loan offered a lower interest rate and a 12-month term, providing ample time for sales without pressure.
This case illustrates how development exit finance can provide a solution when projects don’t go exactly to plan. It allowed the developer to avoid potential default on their original loan, reduce their interest costs, and gain the time needed to maximise their sales returns.
How is Development Exit Finance different from Development Finance?
Property developers use development finance to kickstart projects, funding land purchases and construction with higher interest rates and staged payments.
As projects near completion, developers can switch to development exit finance, which refinances existing loans at lower rates and provides a lump sum with more flexible terms.
While development finance requires a rigorous application process focused on project viability, development exit finance offers a faster, simpler application due to the reduced lending risk at this late stage.
Ultimately, development finance gets projects off the ground, whereas development exit finance helps optimise costs, extend sales periods, and free up capital for new ventures.
How Respect Capital Can Help
At Respect Capital, we specialise in helping developers secure the right commercial development finance for their projects.
Whether you’re browsing, researching or ready to go, we are here for you.
contact us- Access to over 200 lenders: From high street banks to private banks and specialist development finance providers.
- In-depth market knowledge: We understand the nuances of different lenders’ criteria and can match you with the most suitable options.
- Application support: We’ll guide you through the entire process, from initial enquiry to drawdown of funds.
- Ongoing assistance: Our support continues throughout your project, helping you address any challenges that arise.
