Developer Exit Finance
Development Exit Finance (Developer Exit Finance, Finish and Exit Finance) allows developers to refinance existing development projects on better terms, raise more finance, cash out equity or lock in a better rate.
Development exit finance lets you refinance an existing development loan onto a short-term finance facility, repaying your existing one. This new loan gives you the benefit of the following:
- achieving better terms (known as Term refinancing)
- unlocking additional finance (known as Cash-out refinancing)
- locking in a better rate (known as Rate refinancing)
- remove concerns about missing your development exit strategy
- remove conflict or concern of repossession.
Refinance your Development Finance when you're not ready to exit, want better terms, or need to cash out equity.
Our Development Exit Service
We know the opportunities development finance solves and the challenges those who use it face. Whether you're refinancing to maximise your loan amount, achieve better terms, lock in better rates, seize another opportunity, or because your original exit looks set to be delayed or even fail, we can refinance your development project.
We can arrange development exit finance for loans from £26,000 to £250,000,000.
Please speak with our experts for the latest rates for refinancing your development.
Get your best no-obligation quote today - we're ready to help.
Our Development Exit Products
Property Development Refinance
Property development refinancing is a short-term loan to repay a finance facility for building construction, conversion and renovation. It comes in various structures, such as debt, equity or a combination. The most common structures for Development refinance are debt-based loans, such as:
- Senior loan/debt, also known as a 1st charge.
Typically covering up to 100% of construction costs and part of the site purchase costs up to 65% of GDV. - Mezzanine loan/debt, Junior debt, 2nd charge or Subordinate Debt.
Typically, a smaller loan than the senior loan leverages the remaining equity to release capital for the same or different development project. - Other refinance options include Stretched Senior Debt, 100% structured finance, Preferred Equity and Joint Venture.
When you've finished your development but still require finance to complete your exit, we help you leverage its newly realised market value to minimise loan interest charges and maximise profits.
Our development exit finance (developer exit loan) allows you the time to complete the sale of your asset or obtain longer-term financing.
Arrange a call today and get our best no-obligation quote.
Developer Exit Lending Criteria
| Loan to value (LTV) | Up to 75% maximum |
| Loan term | 1 to 12 months |
| Loan amount | £200,000 up to £250m |
| Interest options | Rolled-up, retained or serviced |
| Interest rates | From 0.44% |
| Decision | Immediate decision in principle |
| Completion | 2-12 weeks |
| Early repayment fees | None |
| Availability | Secured on assets in UK & Europe Individuals, Companies, SPVs No credit & adverse credit considered |
| Exit strategy | Sale or refinance |
2024 Development Exit Finance Guide
Development exit finance is a strategic finance solution for developers who often find themselves at a critical junction—when a project nears completion or has already crossed the finish line. This specialised form of short-term lending offers a lifeline for developers looking to refinance or cash out equity under better terms and acts as a safety net, providing the much-needed buffer to navigate the sales process without the duress of immediate loan repayments. However, like any financial product, it comes with advantages and challenges.
While development exit finance can offer lower interest rates and flexibility, it also incurs various costs. It demands careful consideration of the project's specifics, market conditions, and the developer's financial strategy. Alternatives such as traditional development finance, commercial mortgages, and bridging loans provide a spectrum of options, each with unique benefits and limitations. Understanding the mechanics, costs, rates, and borrowing capacities associated with development exit finance is essential for developers to make informed decisions, ensuring their projects' financial health and profitability in the often complex world of real estate development.
Contents
What is development exit finance?
Development exit finance is a short-term loan property developers use to refinance an existing development. Development exit finance can be used at any stage of the build schedule to refinance the project. However, it's typically used when a development project is nearing completion or has been completed and when the developer seeks to cash out equity or achieve better terms.
Here are some key aspects of development exit finance:
- Purpose. It allows developers to exit their current development loan, which might be nearing its end or more expensive than refinancing, securing better loan terms. It provides a buffer period for developers to sell their property or properties without the pressure of immediate repayment at potentially high rates.
- Benefits. Development exit finance can offer lower interest rates than the original development finance, as the project risk is reduced once the development is completed or near completion. This can significantly reduce the financial costs to the developer, improving cash flow and potentially increasing profitability.
- Duration. These loans are short-term, usually ranging from a few months to two years, providing developers with flexibility to manage their sales strategy or refinance options.
- Criteria. Lenders will look at the value of the completed development, the developer's exit strategy (sale or refinance), the quality and location of the project, and the borrower's track record.
- Use Cases. It's often used when a development project has taken longer than expected and the original finance term is expiring, or when a developer wants to take advantage of lower interest rates and more favourable loan terms before selling the property.
Development exit finance is a strategic tool for managing financial risk and optimising profitability towards the end of a property development project. It is a finding bridge between completing a project and achieving the final step of selling or refinancing the property under more favourable conditions.
What types of development projects can it be used for?
Development exit finance is available on residential, semi-commmercial and commercial real estate development.
What are the alternatives to development exit finance?
Yes, property developers might consider several alternatives to development exit finance, depending on their specific situation, goals, and project stage. Here are some common alternatives:
Traditional Development Finance. Developers might opt to extend their existing development finance loan if the project is incomplete. This could be more suitable if the lender is willing to negotiate terms or if the project requires additional time for completion beyond the original schedule.
Commercial Mortgages. Developers might qualify for a commercial mortgage for completed projects and generating income (e.g., rental income from a residential or commercial property). This option typically offers longer loan terms and could be used to refinance the existing development loan.
Bridging Loans. Similar to development exit finance, bridging loans are short-term financing options that can bridge the gap between the completion of a project and the next step, whether selling the property or securing long-term financing. Bridging loans are versatile and can be tailored to various situations, but they often come with higher interest rates.
Equity Release. In some cases, developers might sell a stake in the project or property to an investor to raise funds, known as equity finance. This can provide a cash injection without the need to take on more debt but does dilute the developer's ownership.
Mezzanine Finance. This is a hybrid form of financing that combines elements of debt and equity financing. It is typically used to fill a funding gap that can't be covered by traditional debt alone. Mezzanine finance can be expensive but offers flexibility for developers who need additional funds to complete a project or bridge to a sale.
Each of these alternatives has advantages and disadvantages, and the best choice will depend on the project's specific requirements, the developer's financial situation, and the market conditions.
What are the advantages of development exit finance?
Development exit finance offers several advantages for property developers, especially as projects are near completion or have been completed. Here are some of the key benefits:
- Lower Interest Rates. Development exit finance typically comes with lower interest rates than ground-up development finance. This is because the project is at a less risky stage, either completed or near completion, which reduces the lender's risk.
- Improved Cash Flow. The lower interest rates associated with development exit finance can significantly improve a developer's cash flow. This is particularly important in the final stages of a project when funds may be tight and sales or leasing efforts are underway.
- Extended Repayment Period. Development exit loans often give developers an extended period to repay the loan. This additional time can be crucial for developers looking to sell properties at the best price rather than rushing into sales due to financial pressure.
- Flexibility. These loans offer flexibility in terms of repayment. Many lenders specialising in development exit finance will tailor the loan terms to suit the developer's specific needs, including interest roll-up options or flexible repayment terms.
- Allows for Refinancing. Developers can use development exit finance to refinance existing debt under more favourable terms. This can be particularly beneficial if the original development loan is ending or if the terms are no longer suitable.
- Bridge to Permanent Financing. For projects that will be held and rented out, development exit finance can serve as a bridge to obtaining permanent financing, such as a long-term mortgage, once the rental income is stabilised.
- Facilitates Sales Strategy. The financial breathing room provided by development exit finance allows developers to implement their sales strategies more effectively. They can wait for the right buyer or better market conditions instead of being forced to sell quickly at potentially lower prices.
- Reduced Financial Stress. Developers can reduce the financial stress associated with completing and selling a project by securing lower interest rates and more favourable terms. This can be especially beneficial in uncertain market conditions.
- Quick Access to Funds. Development exit finance can often be arranged quickly, providing developers with rapid access to funds to repay existing lenders or to cover final project costs.
- Enhances Profitability. Ultimately, the combination of lower interest rates, extended repayment periods, and the ability to optimise sales timing can enhance the overall profitability of a development project.
Development exit finance can be valuable for managing the transition from project completion to sale or refinancing.
What are the disadvantages of development exit finance?
While development exit finance offers several benefits, particularly for property developers looking to transition from the construction phase to sale or long-term financing, it also comes with certain disadvantages that should be considered:
- Costs and Fees. Despite potentially lower interest rates than traditional development finance, development exit finance can involve significant costs, including arrangement fees, exit fees, and legal costs. These expenses can add up, affecting the overall profitability of the project.
- Security Requirements. Like other types of property finance, development exit finance typically requires the property as security. If the developer fails to repay the loan, the lender can take possession of the property, potentially losing the asset.
- Refinancing Risks. Refinancing is always a risk, including the possibility that the new loan terms may not be as favourable as expected or that unforeseen market conditions could impact the developer's ability to secure long-term financing at the end of the development exit loan period.
- Dependency on Sales or Refinancing. The effectiveness of development exit finance is often contingent upon the developer's ability to sell the property or secure long-term refinancing within the loan period. Delays in sales or changes in the market can pose significant risks.
- Short-term Solution. Development exit finance is essentially a short-term solution. While it can provide critical breathing space, it does not eliminate the need to sell the property or find permanent financing. This can pressure developers to conclude these transactions within a specific timeframe.
- Limited Flexibility. Some development exit finance agreements may have restrictive terms, limiting the developer's ability to make decisions regarding the property. For instance, certain sales strategies or additional borrowing against the property may not be permitted under the loan terms.
- Qualification Criteria. Not all projects or developers will qualify for development exit finance. Lenders will consider various factors, including the project's viability, the developer's track record, and the security offered. Some developers may find it challenging to meet these criteria, especially in competitive lending environments.
- Market Dependence. The success of using development exit finance is often closely tied to market conditions. A downturn in the property market can affect both the ability to sell at a desired price and the availability of favourable refinancing options.
- Interest Rate Variability. If the development exit finance obtained has a variable interest rate, there is a risk that rates could increase over the loan term, increasing the cost of borrowing.
- Potential for Negative Equity. Property markets can be volatile, and the market value of the development could decrease during the term of the development exit finance. In that case, there is a risk that the loan could end up being more than the property's value (negative equity), especially if the market experiences a significant downturn.
How does the development finance work?
Development finance is funding for construction, conversion, or heavy refurbishment. It's used by property developers, enabling them to undertake projects that might otherwise be beyond their financial reach. Here's an overview of how development finance works:
Application and Approval Process
Initial Proposal. Developers present their project plans to potential lenders, including details about the property location, project scale, development costs, and projected end values (Gross Development Value - GDV).
Feasibility Assessment. Lenders evaluate the proposal based on the project's viability, the developer's experience, projected costs, and potential returns. This assessment includes a review of planning permissions, construction plans, and the developer's track record.
Valuation and Due Diligence. A valuation is conducted on the proposed development site, along with due diligence checks on the developer and the project. This process helps the lender understand the risks involved.
Loan Offer. If the project is deemed viable, the lender issues a loan offer, specifying the loan amount, interest rates, loan-to-value (LTV) ratio, and other terms and conditions.
Acceptance and Legal Work. Upon acceptance of the offer by the developer, legal work begins to finalize the loan agreements.
Funding Structure
Loan Amount: Typically based on a percentage of the project's costs or the GDV. Lenders commonly finance up to 60-70% of the GDV or 80-90% of the development costs.
Drawdowns. Funds are usually released in staged drawdowns, corresponding to the completion of predetermined project stages, rather than in a single lump sum. Each drawdown is subject to inspection and approval by the lender's surveyor.
Interest. Interest may be charged at a fixed or variable rate and can often be "rolled up" to be paid at the end of the term, reducing the need for monthly payments and helping cash flow during the project.
Completion and Repayment
Project Completion
Once the project is completed and either sold or refinanced, the loan is repaid from the proceeds. The developer pays back the capital along with any accrued interest and fees.
Exit Strategy. A clear exit strategy is essential for securing development finance. This could be selling the developed property or refinancing to a longer-term loan based on the property's rental income.
Key Considerations
Risk and Security. Development finance is secured against the land or property being developed. If the project fails or the developer cannot repay the loan, the lender may take possession of the property.
Costs. In addition to interest, development finance involves various fees, including arrangement, exit, valuation, and legal fees.
Flexibility. Lenders offer varying degrees of flexibility regarding loan amounts, terms, and repayment structures, catering to different types of projects and developer needs.
What are the costs of development exit finance?
The costs associated with development exit finance can vary depending on the lender, the project specifics, and the loan terms. However, there are several common costs that developers should expect when securing development exit finance.
Interest Rates. The interest rate on development exit finance can vary widely but is generally lower than traditional development finance due to the reduced risk (as the project is near completion or completed). Rates can be fixed or variable; the overall cost will depend on the loan amount and term.
Arrangement Fee. Also known as a facility fee, the lender charges this for setting up the loan. It's typically calculated as a percentage of the loan amount, ranging from 1% to 2%.
Exit Fee. Some lenders charge an exit fee when the loan is repaid. Like the arrangement fee, this is usually a percentage of the loan amount, though not all lenders charge it, and it can sometimes be negotiated.
Valuation Fee. Before agreeing to provide development exit finance, the lender will require a project valuation to assess its current market value. The borrower must usually cover the cost of this valuation, which can vary based on the size and complexity of the project.
Legal Fees. Borrowers are often required to cover the legal costs incurred by the lender in arranging the loan. This can include the costs of due diligence checks, drafting loan agreements, and registering security interests.
Surveyor or Monitoring Fees. If the project is not yet completed, the lender may appoint a surveyor or a monitoring surveyor to oversee the development completion and approve loan drawdowns. The borrower usually bears the cost of these services.
Early Repayment Charges. Some development exit finance loans come with penalties for early repayment. It’s important to understand the terms of your loan agreement, as these charges can significantly impact the total cost of borrowing if you plan to repay the loan ahead of schedule.
Broker Fees. If you use a finance broker to find and arrange your development exit finance, you may also need to pay a broker fee. This fee varies widely depending on the broker and the complexity of the financing arrangement.
Administration Fees. Some lenders may charge additional fees for the administration involved in managing the loan, especially if there are complex drawdown arrangements or if the loan requires bespoke structuring.
It's essential for developers to review the terms of any development exit finance offer carefully and to factor in all associated costs when calculating the financial viability of their exit strategy.
What are the rates for Development Exit Finance?
The rates for Development Exit Finance can vary widely depending on several factors, including the lender, the project specifics, the borrower's experience, and the overall risk associated with the loan. Property developers typically use development exit finance to transition from a higher-cost development loan to a lower-cost option as their project nears completion or has been completed, allowing them more time to sell or refinance the property.
Factors Influencing Development Exit Finance Rates
Loan-to-Value (LTV) Ratio. The loan amount compared to the property's value can significantly affect the interest rate. Lower LTV ratios usually result in lower interest rates because they represent less risk to the lender.
Project Risk. Projects deemed lower risk (e.g., those in desirable locations, with strong market demand, or developed by experienced developers) may qualify for lower rates.
Developer Experience. Experienced developers with a strong track record of successful projects may be offered more favourable rates.
Economic Conditions. The broader economic environment, including prevailing interest rates and the state of the real estate market, can influence the rates for development exit finance.
Loan Term. The duration of the loan can also impact the interest rate, with shorter-term loans often attracting higher rates due to the increased risk of repayment within a shorter timeframe.
Typical Rates for Development Exit Finance
Interest Rates. The interest rates for development exit finance can range from around 5% to 12% per annum. The wide range reflects the variability based on the factors mentioned above. More commonly, rates are in the mid-to-higher end of this range, reflecting these loans' short-term nature and risk profile.
Other Costs. Beyond interest rates, there are several other costs associated with securing development exit finance, including:
Arrangement Fees. Usually 1% to 2% of the loan amount.
Exit Fees. Some lenders charge an exit fee when the loan is repaid, which can be a percentage of the loan amount.
Valuation Fees. Payable at the outset for the lender to assess the project's value.
Legal Fees. The borrower's and lender's legal fees may be payable by the borrower.
How much can you borrow with development exit finance?
The maximum you can borrow with development exit finance depends on the equity available in your development scheme. At the most 80% LTV, or for every £100,000 of equity, you can cash out £80,000. We arrange development exit finance for loans up to £250,000,000.
Can you get development exit finance as a first-time developer?
Yes, first-time developers are eligible for development exit finance.
Is development exit finance regulated?
Whether development exit finance is regulated or unregulated by the Financial Conduct Authority depends on whether the developer or their close family members intend to live in the property. If they do, the loan will be regulated; if they don't, it will be unregulated.
Is development exit finance for me?
Development exit finance is a pivotal financial tool for property developers navigating the crucial project completion phase. This guide has explored the intricacies of development exit finance, from its definition to its myriad of associated costs and rates, alongside the potential borrowing capacity. It also delves into the diverse alternatives available, ensuring developers comprehensively understand their options. The advantages, such as lower interest rates and extended repayment periods, are balanced against potential drawbacks like associated costs and security requirements.
If you're a developer ready to discuss your development exit finance, then our experts can get you a clearer picture of its application and benefits in your specific situation. Get fully informed in your decision-making and harness the benefits of development exit finance.
We're development finance specialists who arrange exit finance and refinancing for individuals and companies, securing you the best deal from an extensive network of UK property finance lenders, including private investors and family offices.
Get expert assistance today, we're on hand to answer any questions about development exit finance.
Call our friendly team on 01202 612934, we're ready to help.
Other Terms For Development Exit Finance
Development Exit Finance is also known as 'Sales Period Finance' or 'Developer Exit Finance'.
