Development exit
finance
A senior bridge that repays the development facility at practical completion, so the units are sold on their merits rather than against a maturity date.
At practical completion
The scheme is built and the development facility is close to maturity, but the units have not sold. A development exit repays the development lender and replaces a facility priced for construction risk with one secured on a finished building.
Against residual stock
Most of the scheme has sold and a tail of unsold units remains. Residual stock finance refinances what is left, so the developer is not forced to discount the final units to clear a maturing facility.
When the programme has slipped
Practical completion is close but the development facility matures first. An exit facility removes the deadline before it becomes a default, which is a materially different conversation to have early rather than late.
Indicative structural characteristics. Terms on any facility are set by the chosen lender and confirmed on completion of underwriting.
What the exit lender is actually underwriting
A development facility is a construction product. It is drawn in tranches against a monitoring surveyor, and the lender is taking a view on the programme, the contractor and the cost plan. Once the building is finished, none of that is the question any more. The exit lender is looking at a completed asset, a valuation and a sales or refinancing plan, which is a different underwriting exercise performed by a different set of lenders. That is why an exit is arranged as a new facility rather than negotiated as an extension.
The value of putting one in place is time, and time is worth most when it is bought early. A developer selling into the maturity date of a development loan is negotiating from a position every buyer can read. The same units, with twelve months of committed facility behind them, are sold on their merits. Where the scheme is largely away and only a tail remains, the same instrument applied to the unsold units is what the market calls residual stock finance.
Our mandates on this are senior and first charge. Where a scheme needs leverage above what senior debt will fund, the structures involved are described in our note on the development finance capital stack. We take each mandate to a shortlist of three to five lenders chosen for genuine fit with the asset and the jurisdiction. Fees are agreed in writing up front and paid by the borrower on completion.
See also bridge or development finance, development finance and how we work.
Development exit,
answered.
Development exit finance is a bridge that repays a development facility once the scheme has reached, or is close to, practical completion. The development lender is repaid and the debt moves onto a facility secured on a finished building rather than on a construction programme. Its purpose is time: it lets the developer run an orderly sales process instead of selling against the maturity date of the development loan. The facility is senior and first charge, typically 3 to 24 months, and it repays from unit sales or from a refinance onto longer-term debt.
Approaching practical completion?
Send the scheme, the outstanding facility and its maturity date. We will give you a candid view on the exit before it becomes urgent.