This article has been written by Josh Levy, CEO Ultimate Finance. London Belgravia Brokers have partnered up with Ultimate Finance who are a leading asset-based lender who specialise in Bridging Finance.
Overview:
Development Exit finance is a bridging solution for developers at the end of a project to replace existing development finance, reduce finance costs, and release additional equity for cash flow or / and subsequent projects.
Where a development has completed, or reached a stage near completion, but not yet sold and initial development funding is due for repayment, Development Exit provides an opportunity for additional time to sell the units with a financing structure defined by flexibility, speed and lower cost. The value of additional time can be significant in maximising returns at the end of a project for final snagging on units, to maximise sale price, or secure tenants.
At a time when development projects are subject to delays relating to the availability of materials and labour, or impacted by rising clients, Development Exit is an effective solution to keep developers in control of their project and protect profit margins through additional breathing space and a reduction in interest payments.
Development Exit finance is typically most valuable under one of the following circumstances:
- Delays in completing sales or securing long-term BTL finance
- Development project overruns and delays
- Development project cost going over budget
- A desire to release additional capital from a completed project
The main benefits that developers see from using a Development Exit facility are:
- Repay an existing development finance facility that is at the end of its term and avoid extension or late repayment fees
- Protect or increase margins by replacing existing finance with lower cost funding – this is possible as a completed development represents a lower risk to a lender than the original development finance
- Extended period to secure an exit (sales or buy-to-let) without the pressure of a looming repayment deadline – this can help avoid the need to sell quickly at a discount
- Quick access to capital – Development Exit solutions can be put in place very quickly and often in no more than a week, which can be advantageous where an existing facility is at the end of term
- Cashflow benefits as Development Exit financing can be secured on the basis of retained interest which protects cashflow by not needing monthly interest payments to be paid in cash until the final repayment
- Equity release – given that up to 75% LTV can be secured through a Development Exit facility, this can enable the release of equity generated through the uplift in value through the development project and generate additional capital to use towards future projects without it being tied up until the final exit is delivered
In current market conditions, there are many factors that can work against a development to add time, cost and delays to a project. The key advantage of Development Exit finance is therefore to provide valuable time to a development to complete their project, secure their desired exit without cashflow or time pressure, and release capital for the future projects. Development Exit finance can also be used in situations where many of these features are present but the development isn’t yet complete and additional funding is needed for finishing works – this is covered through Development Finish & Exit financing and has many of the same benefits as a typical Development Exit facility.#
Josh Levy, CEO Ultimate Finance.
