Most development schemes reach a point where the build is nearly done and the finance becomes the tightest constraint on the project. The facility was written for a build programme, not a sales programme, and build programmes slip.
The problem at the end of a scheme
Development facilities run to a term, and that term is usually set around practical completion rather than the sale of the last unit. When completion slips by a few weeks, the developer is left paying development-rate interest on a nearly finished asset, often with extension fees in the background.
The pressure that creates is the real risk. A developer facing repayment will discount units to get them away quickly, and the margin the scheme was built for disappears into the discount.
The value is in the building. It usually just needs a little more time to be realised properly.
What development exit finance does
A development exit facility repays the outgoing development debt and replaces it with cheaper short-term lending, secured on the same asset. The developer keeps control of the sales process, the interest cost drops, and the pressure to sell at any price comes off.
It is normally structured around the sales or refinance timeline rather than a fixed template, so as units sell, the facility reduces, and the exit takes care of itself.
When it makes sense
- Practical completion is close, or has just been reached
- Units are ready to market and a rushed sale would waste value
- The client wants to cut their cost of finance while selling
- A refinance onto term debt is planned once the scheme completes
What to send a lender
The quickest enquiries we see include four things: the scheme and its current build stage, the outstanding development debt and its expiry, the sales strategy with evidence of interest or reservations, and the intended exit with realistic timescales.
Send those together and a lender who values in-house can usually come back the same day with a view, which is exactly what your developer client needs when their facility is running out.
We give brokers a straight answer, usually the same day, with in-house valuations and terms built around the exit.
John leads HBI Capital’s lending and is involved in every decision the business makes, and writes here on bridging, development finance and how brokers can move deals faster.