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Finance, Property development

What is development exit finance? 

Development exit finance refers to short-term financing used by property developers to repay outstanding property development finance once the project is nearing completion.

Why is development exit finance necessary?

Property development projects usually require a significant upfront investment in land acquisition, construction, and other development costs. These costs are often funded by development finance, a large package of capital used to build everything from scratch.

The development loan can be repaid once the development is complete, either by selling the property or refinancing it with a traditional mortgage. However, the situation isn’t always so straightforward. For instance, a significant development may only be partially sold, yet the end term of the loan is approaching. Or the development might not be fully complete, yet the developer may need to realise funds to begin another project.

Development exit finance enables developers to repay the initial development loan or finance ongoing costs while they await the sale or refinancing of the property.

When is developer exit finance used?

This type of finance is useful in the following scenarios:

  • The existing development finance facility is coming to an end, but the sale of the property won’t be completed in time to repay the loan.
  • Sale/s of the development aren’t complete, but the developer needs to release capital to enable the next project.
  • To reduce costs. If the developer has funds to repay some of the loan but not all refinancing with a smaller loan minimises the finance cost. Exit finance can often be obtained at a cheaper rate than the original development finance.

How does development exit finance work?

The following criteria usually need to be met to obtain development exit finance:

  • The building must be water and wind-tight.
  • The developer will need to provide a viable exit strategy.
  • The developer must provide collateral – this is usually the development itself.
  • The loan is deemed viable following a risk assessment by the lender.

However, even if not the case, there may be potential funding solutions for your project.

Talk to us if you want to learn more about development exit finance. With over 20 offices nationwide, there is always a local director to assist you.

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