Development Exit Finance
We dealt with Steven and he was very helpful, personable and explained in layman’s terms when needed. He was full of good advice. We got a great deal with his assistance. Thank you!
What Are The Costs Of Development Exit Finance?
What Are The Costs Of Development Exit Finance?
When seeking development exit finance, you must take all of the associated costs into account. These include:
Interest Rates
From 0.55% per month.
Lender Arrangement Fees
Lenders charge these for making the loan arrangements. Typically you pay them on completion. These fees could be between 1% and 2% of the loan and are often able to be added onto the loan.
Broker Fees
Some brokers also charge arrangement fees. These can be as much as 2% of the total amount of the loan.
Lender Exit Fees
At the time of repaying the loan in full, some facilities charge an extra fee. This may either be 1% of the total loan amount or the equivalent of a month’s interest.
Valuation Fees
New property developments require you to carry out a Red Book Valuation on a 180-day sale basis. You must pay Valuation fees before carrying out the survey.
Legal Fees
Typically, property developers take responsibility for both parties’ legal work. The fee is due when the facility reaches completion. Should the facility fail to complete, you must usually pay abortive fees.
Lenders may consider Adverse Credit.
Product Feature Range
Key features
| Max LTV | Up to 85% |
| Interest rate | From 0.14% per month above BoE |
| Charge types | 1st, 2nd & 3rd considered |
| Term | 1-36 months (max 60 months for regulated loans) |
| Interest type | Added to the loan, deducted or serviced |
| Completion timescale | 3 days – 4 weeks |
What Are The Criteria For Development Exit Finance
- Residential, commercial property or land acceptable
- Available to individuals, partnerships, LLPs, Ltd companies, offshore companies, foreign nationals and pension funds
- Minimum applicant age 18 years – no maximum age subject to exit strategy.
- Adverse credit accepted (on a case by case basis)
- Loans from £1,000,000 with no maximum loan size with Madison Carter Finance
Development Exit Finance Calculator
As a property developer, your success relies on your ability to adapt and change. You must stay flexible, so having an eye on your exit strategy is key. If you are too committed to one project you could miss out on other potentially lucrative opportunities which present themselves.
Staying competitive requires you to maintain financial agility. That is where development exit finance can prove to be a vital tool. It allows you to fulfill your outstanding financial obligations.
This useful tool allows a property developer to move onwards from projects that are not yet fully complete while tying up their existing finance loose ends. Nevertheless, despite its ability to help resolve projects that have reached maturity, development exit finance isn’t always the right choice. You must carefully consider the full implications of taking on this financial product before taking the plunge. That’s another reason property development loan advice is essential.
You can not only use exit finance as demonstrated above to maximise the amount of equity you can draw from a property.
The developer exit finance package can repay the current lender. This allows the developer to leave the project if it becomes necessary to do so. This may occur because the current lender requires their funds as the facility has come to an end. Alternatively, they may wish to take advantage of a better opportunity that arises.
Exit finance gives the property developer the opportunity to refinance the project to either:
- Release equity.
- Buy more time.
- Transfer to a cheaper finance option as the site is already or almost complete.
Development exit finance gives developers another option as an alternative to committing to a project until its completion. There may be a high cost to exit the project before it completes, and exit finance loans are sometimes cheaper. Nevertheless, they present a valuable opportunity to exit projects and consolidate an ongoing project’s costs.
We are seeing more property developers not hitting practical completion (PC). Costs have gone up over the time of the project and the clients require more funds to complete. We are using a light refurbishment loan for such developments that are part complete. The leverage can go up to 75% Net of market value (MV). If this is you, get in touch today.
Property development as an industry can present some unexpected complexities. The concept may appear straightforward. You borrow money to buy some land then build on it before selling it at a profit. However, the reality is often far more complicated.
For example, you may have mostly sold a large property development but a few empty spaces may remain available for sale. Or a property may mostly be complete but still need a couple of finishing touches before selling it on.
When situations like these arise, there’s not really any need to stick with the existing development finance arrangement that was put in place to help build the property. Development finance packages consist of large amounts of capital used to construct the project from scratch. As a result, it comprises a very large percentage of the total value of the property.
A loan this large may not be necessary once the project has almost reached full completion. The developer can benefit if they consolidate that borrowing into a single exit finance package instead.
This example illustrates how development exit finance can help make a development that is virtually complete more profitable. Let’s imagine that a newly constructed apartment block cost £15 million to build. The developer sourced this amount via development finance over the project’s course.
Now the building is complete and ready to accept its first residents. Although most of the apartments are sold, there remains a couple that have yet to attract a purchaser. The property development is now in a difficult situation. They can’t repay the loans in full until they find buyers for the whole property.
The developer has gained the majority of the money they require to repay their creditors. But they cannot fully repay the loan. They will not meet their repayments once the term of the loan expires.
Of course, non-repayment of the loans is out of the question since the lender may repossess the assets. Therefore, seeking out a refinancing option is the best course of action. It enables the developer to retain the ownership of the assets while also satisfying their financial commitment to the lender. This is where development exit finance comes into play.
It allows the developer to rapidly satisfy their creditor while also minimising the costs of maintaining the loan. Since the majority of the money is already in place to complete the repayments, they only need a small development exit loan. The rate is likely to be more affordable and it will buy the developer more time to sell. This could be as little as 12 months for a marketing period or to finish the development project.
There are several factors that dictate how long it takes to complete development exit loans. These include the complexity and size of the project, the creditworthiness of the borrower, and the lender’s requirements.
On average, it takes between 3 days and 4 weeks to complete a development exit loan and to draw down funds. If any delays or complications arise, it may take longer.
What Will Happen When The Properties Begin To Sell?
Development finance loans see all the proceeds of sales go towards repaying the total loan amount. Development exit finance, on the other hand, operates differently. Most lenders typically allow property developers to retain a portion of their sale proceeds.
As a result, it’s possible to control cash flow throughout the selling process. On the other hand, if a property developer wishes to repay their loan as fast as possible, they can use all the sales proceeds to reduce their loan balance.
These loans give property developers sufficient funds to complete their construction project then exit during the development stage. The benefits of taking out development exit financing include:
Access to valuable funds: A development exit loan can give property developers the funds they need to complete their project even when other finance options like a traditional bank loan are unavailable.
Speedier completion: When developers have the funds they need in hand via development exit finance, the project can be completed more quickly, thus increasing ROI.
Reduced risk: A development exit loan can enable developers to manage the risks associated with construction projects by supplying an ongoing funding source that allows the focus to remain on project completion.
Higher returns: When projects are completed on budget and on time, a higher ROI is possible. Also, the interest rate may be cheaper than that for development facilities.
How long does it take to complete the loan?
The length of time it takes to complete a development exit loan can vary depending on a number of factors, such as the size and complexity of the project, the lender’s requirements and the borrower’s creditworthiness. On average, it can take 3 days to 4 weeks to complete a development exit loan, to draw down funds. It can take longer if there are any complications or delays.
It’s best to speak with one of our advisors to get a more accurate estimate of how long it will take to complete the development exit loan for your specific project.
How much can you borrow?
Good question. The answer will very depending on the term or time the exit loan is required for. The gross loan is typically 75% and depending on the time reduces the net loan as the retained interest will eat the day one funds available. Madison Carter Finance Bridging Loans has access to an exclusive 75% net loan facility for special clients. Speak to an advisor today to find out more 020 7431 7606
What happens when you start selling the properties?
Unlike development finance, which sees all sale proceeds used to repay the loan amount, development exit lenders are generally happy to allow you to keep a proportion of the sales proceeds.
This allows you to control your cash flow during the sales process and move forward with your next project.
Of course, if you would prefer to repay the loan as quickly as possible, you can use 100% of any sales to reduce the loan balance.
Why should you look to take development exit finance?
Development exit finance, also known as a construction exit loan, is a type of loan that can provide developers and builders with the funds they need to complete a construction project and exit the development stage. There are several reasons why you might consider taking a development exit loan:
Access To Capital
Development exit loans can provide you with the funds you need to finish a project, even if other financing options, such as traditional bank loans, are not available.
Faster Completion
With the necessary funds in hand, a development exit loan can help you complete your project faster, which can increase your return on investment.
Reduced Risk
Development exit loans can help you manage the risk associated with a construction project by providing a steady source of funding and allowing you to focus on completing the project.
Higher Returns
A project completed on time and on budget can result in a higher return on investment. The rate of interest maybe cheaper than a you are paying for a development facility.
It’s important to keep in mind that development exit finance may have higher interest rates and more strict requirements than traditional bank loans, so it’s crucial to consult with a financial advisor and understand the terms of the loan before taking it.
Can you achieve better terms if your project has hit practical completion?
Lenders may be more willing to provide financing for a completed project because it presents less risk and the lender can see exactly what they are financing. Completed projects are easier to run an analysis evaluated for its value, which can make it easier to determine the loan amount and terms. Terms will be more favorable if the project has already hit practical completion.
If the project has already completed and generating revenue, the lender will be more willing to provide financing because there is a steady stream of income to exit the loan.
However, keep in mind that this may not always be the case, as lender’s criteria and policies may vary, and it’s always best to consult with a financial advisor or lender to understand the terms and conditions of the loan.
It’s also important to have a clear plan for repaying the loan, as well as an understanding of the cash flow and projected income from the project, to ensure that you can make the loan payment(s) on time.
What happens if you repay the loan early?
If you repay a development exit loan early, it can benefit you as a borrower. This depends on the terms of the loan and the lender’s policies. Some lenders charge a penalty for early repayment. Others may not. These fees are usually a percentage of the outstanding balance of the loan and vary between lenders.
Not all lenders charge a pre-payment penalty. Some even offer incentives for early repayment. Some lenders offer a lower interest rate if you agree to pay off the loan early.
You must check the loan agreement terms and consult with the lender to understand early repayment costs and benefits. You need a strategy in place to ensure you can afford the required lump-sum payment.
Overall, repaying the loan early can help you save on interest costs and help you own the property sooner. But you must weigh the pros and cons before deciding.
What happens if you repay the loan early?
When the develop exit loan is arrange the developer will require the loan for a term i.e 12 months. The time will reduce the amount of net-loan available on day one. Thus, you will pay for what you use but many have a minimum term* a refund maybe payable.
How long does it take to complete the loan?
We say typically 4 weeks but we have transacted quicker. It comes down to the stage of the project and the turn around for documentation from the property developer to satisfy the underwriters.
What happens when you start selling the properties?
This will depend on the terms agreed in advance to complete the loan but property developers do release equity on day one. This helps with cashflow.
What other cheaper financial products are available?
Mezzanine Finance is just one option for obtaining short-term financing. There are other alternative, such as engaging a private lender to bridge the financial gap – that could be us. This could involve using our own resources or you leveraging on other assets.
Case Studies
Development Exit Finance Canary Wharf
A blue chip property developer client required a developer exit finance product to re-finance away from a development facility that had come to the end of its term.
Development Exit Finance Essex
Madison Carter Finance refinanced away from first charge development finance facility, which is is difficult, especially whilst the project was live. Later a development exit finance product was sourced to release equity to help finish the project.
Development Exit Finance Finsbury Park
An existing client contacted us, that had a development facility coming to an end and had gone over budget. For a standard LTV development exit finance product, it did not fit as loan to value was at 75%.
Development Exit Finance Hampstead
An existing client had just built their dream home in Hampstead, London, NW3. The property GDV was £13.5m. There were some surprising costs that arose thought-out the project and the client wanted to enjoy the home before they had to sell.
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