DEVELOPMENT EXIT FINANCE
WE ARRANGE DEVELOPMENT EXIT FINANCE ON BOTH RESIDENTIAL AND COMMERCIAL PROPERTY
Why would you need development exit finanace?
Maintaining adaptability and embracing change is crucial for success in the property development industry. To ensure you remain flexible, it’s essential to keep a close eye on your exit strategy. Overcommitting to a single project could potentially cause you to miss out on other lucrative opportunities that may arise.
To stay competitive, it’s important to maintain financial agility, and this is where development exit finance can be an invaluable tool for fulfilling your outstanding financial obligations.
This valuable resource enables property developers to transition from projects that are not yet fully completed while effectively managing their existing financial commitments. However, it’s important to note that while development exit finance can assist in resolving mature projects, it may not always be the best choice. It’s crucial to carefully consider the full implications of opting for this financial product before making a decision. This underscores the importance of seeking advice on property development loans to make an informed choice.
Exit finance serves as a versatile tool, not only for maximizing the equity a developer can extract from a property, but also for addressing various project-related needs:
Repaying Current Lenders: It enables developers to settle their current loans, providing the flexibility to exit a project when necessary. This could arise due to the lender’s requirement as their facility expires or to seize a more favorable opportunity.
Project Refinancing: Exit finance empowers property developers to refinance a project, offering options such as equity release, additional time, or transitioning to a more cost-effective financing arrangement, particularly when a site is already near completion.
Alternative to Commitment: For developers, it represents an alternative to staying committed to a project until its conclusion. While exiting a project before completion may incur higher costs, exit finance loans can often provide a more economical solution, offering an opportunity to exit projects and consolidate the ongoing project’s expenses.
In essence, exit finance offers a valuable means for property developers to adapt to changing circumstances, seize new opportunities, and effectively manage their projects and finances.
Property development can be intricate. While it may seem simple – secure financing, build, and sell – the reality can be different.
For instance, imagine a substantial development project nearing completion. Most of the units have been sold, but a few remain vacant, or the project may be nearly finished but requires some final touches before it’s ready for the market.
In such situations, sticking with the original development finance arrangement, primarily designed for the construction phase, might not be the most efficient approach. Development finance typically involves a significant injection of capital aimed at funding the construction process. As a project nears completion, the need for such a substantial loan decreases, making it more advantageous for developers to consolidate their borrowing into a single exit finance package.
Here’s an illustrative example: Let’s say an apartment block was constructed at a cost of £15 million, funded through development finance. Now, the building is ready for occupancy, with most units sold, but a few remaining unsold. The property development faces a dilemma because full loan repayment is dependent on finding buyers for these remaining units.
While a significant portion of the funds required for repayment has been secured, complete repayment isn’t feasible until all units are sold. This situation can pose challenges when the loan term expires.
Defaulting on loans isn’t a viable option, as it could lead to the lender repossessing the property. Therefore, the most prudent course of action is to seek refinancing options that enable the developer to retain ownership while meeting their financial obligations. This is where development exit finance plays a pivotal role.
Development exit finance allows developers to quickly satisfy their creditors while minimizing the costs associated with loan maintenance. Since the bulk of the funds needed for repayment are already in place, only a smaller development exit loan is necessary, often with more favorable terms and an extended timeframe to facilitate sales, which could be as short as 12 months, providing the developer with additional time for marketing or project completion.
The timeline for completing development exit loans depends on various factors, including project complexity, size, borrower creditworthiness, and lender requirements.
On average, the process of finalizing a development exit loan and disbursing funds typically spans from 3 days to 4 weeks. However, unanticipated delays or complications may prolong this timeline.
As properties begin to sell, the financial dynamics differ between development finance loans and development exit finance. In development finance loans, all sales proceeds are allocated to repaying the total loan amount. Conversely, development exit finance operates differently, with most lenders permitting property developers to retain a portion of the sale proceeds.
This arrangement offers the advantage of managing cash flow throughout the sales process. Conversely, if a property developer aims for swift loan repayment, they have the option to use all of the sales proceeds to reduce their outstanding loan balance.
Development exit loans provide property developers with essential funding to finish their construction projects and exit during the development phase. Here are the key benefits of opting for development exit financing:
Access to Vital Funds: Development exit loans offer property developers access to the necessary capital required to complete their projects, especially when conventional financing options, such as traditional bank loans, may not be readily available or suitable.
Accelerated Project Completion: With the funds readily available through development exit finance, developers can expedite project completion. This swift completion not only ensures a faster return on investment (ROI) but also reduces holding costs.
Risk Mitigation: Development exit loans act as a buffer, helping developers manage the inherent risks associated with construction projects. The availability of ongoing funding allows developers to maintain their focus on project completion without unnecessary financial stress.
Enhanced Returns: Projects completed on budget and on schedule have the potential for higher ROI. Additionally, the interest rates associated with development exit loans may be more competitive compared to those of traditional development facilities, further enhancing profitability.
In summary, development exit financing provides property developers with a valuable financial tool to streamline project completion, mitigate risks, and ultimately achieve higher returns on their investments.
The next step is to contact us on 01772 217917 to discuss your requirements in more detail, alternatively please feel free to send us an email.