When we receive a development finance enquiry, the conversation usually starts with the GDV, the build costs and the timelines. Fair enough, those things matter. But there’s another question that is just as important: “How are you actually exiting the loan?”
In our experience, the development finance applications that run most smoothly aren’t just well-funded, they’re well-exited, too. That doesn’t mean the exit is fixed from day one (because let’s face it – markets change and plans evolve), but it does mean it is thought about early on and kept under review throughout the project.
To sell or to refinance?
Selling used to be the obvious endpoint for most projects. These days, it is rarely that simple. We’re currently seeing more clients choosing to retain and refinance their developments instead. Sometimes that’s driven by softer sales markets, sometimes by tax or portfolio strategy, and sometimes because once the scheme is finished, holding it just makes more sense.
There is no right answer here, and that’s the point. When the exit is considered early, there are options. If sales stack up, great. If refinancing delivers a better long-term outcome, that route is already mapped out. The problem arises when the exit hasn’t really been thought through, and snap decisions are made under pressure.
Plan your refinance exit early
One thing we are sceptical of is the idea that refinance exits can always be “sorted later on”. When in reality, leaving things until completion is often when things start to get messy. The long-term lender’s appetite could shift, the new valuation doesn’t quite land, or development finance ends up staying in place for much longer than planned.
That is exactly why we involve long-term lenders for our clients earlier in the process. Because lining up their refinance or longer-term facility in advance tends to give our clients peace of mind.
Keeping development finance doing its job
Development finance is a powerful tool, but it is designed to fund a build, not hang around once the project is done and dusted. The longer it sits in place, the more pressure it can put on your costs and overall returns.
A clear, realistic exit (whether that is a sale or a refinance) helps avoid unnecessary extensions and late-night submissions of long-term funding applications. A realistic exit also tends to protect profit margins, which, let’s be honest, is usually the bit everyone cares about most by the end.
So, while it might feel counterintuitive, the strongest development finance applications often start at the end – with a clear-eyed view of what “completed” actually looks like, and a realistic plan of how to get there.
Moral of the story? Just make sure your development loan exit has been given the same attention as your build.
Contact us on 020 8075 3255 or fill in our online form to find out how we could support your first (or next) development finance project.
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